This is a question we get asked a lot, and we quite often help people find solutions if its happened, so we thought we should talk about it.
Firstly, if your interest only mortgage term is about to expire, you should be reassured that there are lots of other people in the same position, with over 1,000,000 yet to mature between now and 2030. (UK Finance Interest Only Data) https://www.ukfinance.org.uk/data-and-research/data/interest-only-mortgages
So what is an Interest Only Mortgage?
An interest only mortgage is a mortgage where you are only paying off the interest, not the amount borrowed. Unlike a repayment mortgage, this means the amount you originally borrowed still has to be repaid at the end of the mortgage term.
As such there should be a repayment strategy in place, to ensure the original sum can be repaid when it is due.
What happens at the end of an Interest Only Mortgage?
When your interest only mortgage ends, the lender will expect you to repay the amount still owed, and you can do this however you wish. You could use investments, downsize or re-finance the property if possible.
Your lender should have been contacting you periodically to ensure you are checking that your repayment strategy is still on course to repay the balance owed.
So what if your repayment strategy isn’t on course to pay the balance, can I extend the term with my current lender?
Extending the term with your current lender may be an option if your interest only mortgage term is about to expire. It is worth noting that changing the terms of your mortgage will require underwriting, as such the lender would need to be happy with details such as your current age and income.
What if my current lender won’t extend the term?
If you have no way of paying the amount still owed on your interest only mortgage, and your current lender will not extend the term, you could look at the following options;
Downsizing — this involves selling your current property and using the equity to buy another property without using a mortgage.
Remortgage — this involves switching your mortgage to another lender. This again would require underwriting, so the new lender would need to be happy with details such as your current age and income.
Retirement interest only mortgage — this also involves switching your mortgage to another lender, using a different type of mortgage. It is similar to an interest only mortgage, as you are only paying the interest, the key difference is that it is only available to those over 50 and there is no end to the term. The original amount borrowed is paid when the owner either sells the property, enters long term care or dies, and if there are two owners it would be when this happens to the last one.
As you have to continue to make payments towards the mortgage, the lender needs to be happy that you can afford the payments, not only now but in the future. In addition to this they also need to be happy that, if there are two owners, each one of them could afford the mortgage on their own.
Lifetime mortgage — a Lifetime mortgage is a type of equity release which is only available to those aged 55 & over. It can allow you to release tax-free cash from your home without moving out and downsizing, or can be used to help with a purchase if you are downsizing & is non-income assessed. If your finances allow, you could balance the interest by paying some or all of it as it could quickly add up. This is, however, not payable until the house is sold when the second applicant (in the case of joint applications) either passes away or moves into a permanent long-term care. Have a look at our blog on lifetime mortgages should you want more information https://gpnorgate.co.uk/what-is-a-lifetime-mortgage/
If your interest only mortgage term is coming to an end and you want to talk through your options, then please get in touch.
Lifetime Mortgages are applicable to over 55s only, may affect means tested benefits and can affect the inheritance you may leave.
Equity release includes Lifetime Mortgages and Home Reversion Schemes. Easy Street Financial Services Limited can advise and arrange Lifetime Mortgages and will refer to an approved specialist for Home Reversion schemes. To understand the features and risks, please ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice.
GP Norgate Financial Solutions is a trading name of Easy Street Financial Services Limited which is authorised and regulated by the Financial Conduct Authority. Easy Street Financial Services Limited is a company registered in England and Wales with company number 6430453.
The registered office address is Basepoint, 377-399 London Road, Camberley, Surrey, GU15 3HL. There may be a fee for mortgage advice. The precise amount will depend upon your circumstances.
Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.