When an interest-only mortgage ends, the borrower is expected to pay back the amount remaining on their mortgage, provided they have not made any overpayments. This will be the amount that was originally borrowed. It’s because only the interest is paid off each month, which leaves the total loan repayment at the end of the mortgage term.
If the term of your interest-only mortgage is ending and you’re not able to repay the original loan amount, there may be some other options available to you.
One is to sell your home and use the equity to repay your loan. But if you wish to remain in the property, you will need to find the money to repay the loan elsewhere. You can ask your existing lender to extend the mortgage and postpone the repayment date. However, you will still need to pay the mortgage later. So It’s important to balance your short term needs with plans for the longer term.
You can also look at remortgaging with a new lender. This is where you take out a new mortgage on the property and pay off the existing debt. You can also look at unlocking the equity in your property which means you don’t have to sell it, but you normally need an equity release product for this, which is specifically for people over the age of 55.
The mortgage lender will normally allow you to stay on an interest-only mortgage until the end of the term. When you take out the mortgage you’re expected to confirm how you plan to repay the debt at the end of the term.
Most lenders won’t let you take an interest-only mortgage past your retirement age. However, if your mortgage is due to end and you haven’t reached retirement age, they may let you extend the term.
Yes, it is possible to extend the term with your current provider in some instances. They will take into account your proposed repayment plan, your retirement date, your current and future income to make a decision on whether to extend the term. If this is something you plan on doing, it’s best to speak to the lender as soon as possible.
Yes, it is possible to get an interest-only mortgage at 60. It all depends on your personal circumstances and when you plan to retire. Some lenders will be happy to provide you with an interest-only mortgage. The minimum term is normally five years, so if you took it at 60 you could go up to the age of 65.
There are also interest-only mortgages specifically targeted at borrowers aged 55 or over. These are called Retirement Interest Only or RIO mortgages. Lifetime mortgages or equity release could all be an option.
If you took out an interest-only mortgage and feel that it was missold, you could be eligible for interest-only mortgage compensation. Go to the Financial Ombudsman website for information on how to make a claim, if you think this is the case.
The main advantage of an interest-only mortgage is that the monthly mortgage payments will be lower during the term of the mortgage. The extra money normally used to repay the capital on the mortgage can be used towards investments. However, there’s a risk that you might not have enough money at the end to pay off the mortgage in full.
Another disadvantage is that house prices might not increase as much as you expect. If your intention is to downsize at the end of the mortgage term, you might find there is not enough equity to purchase another property.
It is possible for a lender to repossess your home if you’re unable to pay off the mortgage. But this will be a worst case scenario – and it won’t happen straight away. Lenders usually have a specialist team that will look at your circumstances and your future plans to see if they can help come up with a solution that works for both of you.
It’s also a good idea to speak to a broker to see if there are other options available.
We can look at lots of lenders who all have different criteria. We may be able to place you with a new lender based on your current circumstances, even if your current provider won’t let you extend the term.
We’ve also got access to Retirement Interest-Only products specifically designed for borrowers aged over 55. These products, along with lifetime mortgages and equity release, may enable you to pay off your interest-only mortgage with your current lender.
We also work with all our clients and offer regular reviews to make sure you’re on track to pay off the mortgage at the end of the term – and look at options if your position changes.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
A Lifetime Mortgage is not suitable for everyone and may affect your entitlement to means tested benefits, so it is important to seek financial advice before taking any action. If you are considering releasing equity from your home, you should consider all options available before equity release.
The interest that may be accrued over the long term with a Lifetime Mortgage, may mean it is not the cheapest solution. As interest is charged on both the original loan and the interest that has been added, the amount you owe will increase over time, reducing the equity left in your home and the value of any inheritance, potentially to nothing.
Although the final decision is yours, you are encouraged to discuss your plans with your family and beneficiaries, as a Lifetime Mortgage could have an impact on any potential inheritance. We would also encourage you to invite them to join any meetings with your Financial Adviser so they can ask questions and join in the decision, as we believe it is better to discuss your decision with them before you go ahead.
Advice Plain and Simple is a trading name of William Chalice Limited which is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited, which is authorised and regulated by the Financial Conduct Authority. William Chalice registered Office: Unit 1, Hawford Business Centre, Lionel Way, Worcester, WR3 7SG. The information on this website is subject to the regulatory regime and is therefore targeted at consumers in the UK. No representations are made as to whether the information is applicable or available in any other country which may have access to it.
Copyright © Advice Plain and Simple. All rights reserved.
