According to UK Finance, the number of outstanding interest-only mortgages has fallen by almost half (46%) since 2012.
That might not mean much to you unless you have one yourself.
Interest-only mortgage holders only pay the interest due on the amount they have borrowed, supposedly repaying the full amount at the end of the arrangement.
For those with no plan or strategy in place to repay this amount, or break it into more manageable payments, that could leave them in a dangerous financial position.
How did we get here?
Many people are now facing the consequences of taking out an interest-only mortgage during a housing boom, when lenders were much more willing to lend money, with no proof of a repayment strategy. Many people would have taken out an endowment or Personal Equity Plan (PEP) at the same time, with a view to use the money from that to make the final repayment on their mortgage. However, in the years since, many of those investments have been cashed in and the money used for other purposes, leaving no provision to make the impending repayment.
Are you one of them?
If so, you’re not alone. There are approximately 1.67 million people with outstanding interest-only mortgages facing the reality of having to repay an amount which is unaffordable.
While it might be tempting to apportion blame, there’s simply no point in doing so. The issue is simple:
If you do not have the money to make the capital repayment on your interest-only mortgage, time is running out and you need to act fast to avoid falling into financial issues.
What can you do?
There are five options facing you if you are due to make a capital repayment on an interest-only mortgage, and do not have the money available to do so:
1. Change your repayment method
By switching to a capital repayment mortgage, the entire amount you have borrowed will be spread over the rest of your mortgage term. It is likely that this will make repaying your mortgage more manageable, if there is enough time to break the outstanding amount into smaller payments. However, if you don’t, you might want to consider…
2. Changing your mortgage term
It may be possible to extend your mortgage term to give yourself longer to repay it, assuming you switch it to a capital repayment mortgage. If you do want to continue with an interest-only mortgage, you will have to find a way to ensure that you have the whole amount available when your new repayment date approaches, though you will have longer to do so.
3. Make use of other assets
These might include your savings, investments or pension. If you can afford to take money from your other sources to repay your mortgage, it may be a good option, However, taking large amounts out of your pension or savings at this point could interfere with your retirement plans. Therefore, taking advice is very important.
4. Sell the property
You could sell your home and use the proceeds to repay the mortgage. This may be an ideal solution, if there’s sufficient equity to repay the mortgage and buy yourself a new home. However, if that’s not possible, you need to consider other options.
5. Create a hybrid solution
It might take a combination of several methods to find a solution and ensure that you can make your final repayment in full when your mortgage ends. However, to help you to find the right solution, we encourage you to speak to the two groups who really know what they’re talking about where mortgages are concerned:
- Your mortgage provider
- A mortgage adviser (that’s us!)
Talking to a professional will give you a better insight into the options facing you and the ways in which you can make sure that your mortgage is taken care of, without interrupting your retirement plans, or leaving yourself in a dangerous financial position.
For more information, or to get started, please contact us on 0207 808 4120.