Reason for Endowment shortfalls

Of course those reasons constitute "need". If you really want to avoid being thrown out into the street following repossession proceedings, then I'd call that a need. The same is true of psychological "needs" arising out of a desire to avoid loss of face.

Well I have with mine.

That's a bit unfair. It hardly seems an "unfair contract term" for a lender to expect to be repaid at an agreed date, though I'll grant that in the case of a lender whose mainstream business is lending, it could be deemed to be unreasonable for them to demand the money back if all they were going to do is lend it to someone else.

On the other hand, if the lender is a private individual who wanted partly to help out the borrower, partly to invest his money safely for a limited time, and now requires the money for his own purposes, then a deal's a deal and he must be able to insist on its timely return.

"Lend us a tenner and I'll buy you a pint. I'll pay you back next week." Next week arrives and you want your money, but I say I need another year, and meanwhile I'll keep paying you interest at the agreed rate of 0%. Note that the pint was not part of the deal, it was just my round.

But the comment wasn't made in isolation, but in conjunction with the other bit of my post, so if the "need" to repay is mandated by an anticipated change of circumstances, such as drop in income through retirement, then the timescale over which the repayment should take place would clearly need to be aligned with the retirement timetable.

Then its not 'pure' interest only. Its 'interest only for the moment and the capital back at the end'.

Fair enough, but if the creditor is a mortgage based lending institution, then it would be different.

Agreed, which is why 'pure' interest only lenders seek comfort that the borrower can still afford to pay the interest from their post retirement income.

: Also something which gets missed out of the discussion is that part of the : reason for the shortfall is lower inflation. That has also lead to lower : interest rates. If people had been saving the interest as rates fell they : would probably still have a surplus; the trouble is that most people have : probably treated it as a windfall and spent it.

That's *if* they were paying interest on anything.

FoFP

Agreed. Nevertheless is is conventional to refer to the impure ones by the same name:

From the definitions section of my conditions booklet:

1.1.10 "Interest Only Arnold" means an arnold loan whereby all of the capital monies secured by the Arnold are intended to be repaid from the proceeds of a policy of assurance, pension policy or other investment by the end of the Arnold Term.

This "intended to be" is a bit wishy-washy, but is tightenend up in the rest to make clear this IO-Arnold is of the impure variety.

Just how common are the pure ones?

In message , Ronald Raygun writes

Yes, I suggest 'Madeleine' .

Fair enough. Your Arnold-lender makes it quite clear.

Not very. But I've got one. I call it 'Don' so I can distinguish it form the others.

Marvellous. Let me see if I've understood how it goes.

A mortgage is an Arnold. An interest only mortgage is a Madeleine Arnold. Or is it just a Madeleine? A pure interest only mortgage, which you never have to pay back, is a Don Madeleine Arnold. Or is it a Don Madeleine, or just a Don?

No wonder people are put off finance by too much jargon.

I'd have thought that you are expected to repay when the mortgage term ends and that is reflected in the Ts & Cs.

Oh do keep up. Don Madeleine Arnolds don't have a fixed term, or perhaps not even any term at all. They'll be repayable when you stop paying interest, which basically means when you want to, or when you die (and perhaps not even then - your heirs might be given the option to inherit the Arnold's loan and obligations).

Almost right, except that Don is just a nick name for MY pure interest only mortgage, and not the whole genre.

In message , Tumbleweed writes

Depends on the term I suppose.

People may prefer to do that, but it isn't particularly a catastrophe if they can't.

I think a lender who forced a pensioner to sell a £200k house to cover a £10k debt might get a bit of bad publicity ... OTOH, if someone really has such a tight financial situation that they couldn't afford the interest on a few £k of secured debt it may well be that they need to consider selling the house to realise some capital whether they have a shortfall or not.

Also your argument is not really consistent, you replied to my point that interest would only be a few tens of pounds a month by saying that they would in fact have to pay four times as much. Now you are saying that the reason they have to pay four times as much is because they can't even afford the interest, but that just goes back to my original point, which is that the interest should be affordable by pretty much anyone, and which you didn't challenge.

Correct. That is not inconsistent, because it is *after* Mr Example retires that he will find it tough to afford the interest on his measly pension (and the prospect that this will go on until death doth him part from his pension that he finds particularly unappealing). That's why he feels that in the few remaining years *before* he retires, during which he still has a half-decent income, and *can* afford the repayments as well as the interest, he had better take steps to erase the debt as much as he can by the time he retires.

Do you disagree that that is astute of him?

Well, that's the thing. Even if the lender doesn't turn up the pressure, there may well be enough pressure coming from within. His cashflow will be so tight post-retirement that not having to pay the interest forever will make a significant difference to how much he can spend down the pub.

It really makes no difference whether he's forced directly or indirectly to sell his house. Either way it's fate worse than death, or at least a fate worse than he wishes to contemplate.

No, because if there was a term, then you'd have to repay at that point. Can you get open ended interest-only mortgages (ie with no term)?

Not only can he, but he did, and then called it Don.

In message , Tumbleweed writes

It CAN depend on the term. EG lending to a 50 year old with a 99 year term. There is a 'term' but in effect its completely interest only.

Yes, a few lenders do completely open ended interest only.

I still find it hard to believe that anyone with enough income to have bought a house (or most of one) is going to have problems with paying, say, £40 a month in mortgage interest. After all, most people are likely to want to run at least one car in retirement, and that costs £200 a month or more. Indeed the increase in council tax in some areas in the last couple of years has probably been that big! Basically I'd say that anyone whose finances look as though they will be that tight is not saving enough anyway.

But if that's true it will be true even if there is no endowment shortfall, a few £k is not going to make a significant difference either way. To get a decent pension you need assets of something like half a million.

If you really think that having a few thousand pounds less than you expected is worse than being dead I think you have a rather strange attitude!

The Mr Example I was thinking of only has a state pension.

Mr Example has no savings. So having "a few thousand pounds less" puts him in the red. It's the implications of that, i.e. the necessity to uproot at his age, that is worse than being dead.

Of course it's not *really* worse than death, but a bijou spotette of exaggeration does tend to help get one's point across. Sometimes.