Be prepared for when your interest-only mortgage ends
When an interest-only mortgage comes to an end, you must be able to pay it off or you will need to sell your property or other assets. Our easy guide will take you through your options…
If you have bought a home or rental property using an interest-only mortgage, you should act now to make plans for paying off the mortgage when it reaches term – even if that seems a long way into the future!
Unlike a repayment mortgage, where you gradually chip away at the amount owed over the mortgage lifetime, with an interest-only mortgage you only pay off the interest – the original capital still needs to be repaid once the loan comes to an end.
The sad truth is that if you can’t cover this amount at the end, you will be forced to sell your home to cover the bill, leaving you with nowhere to live and probably seeing your family having to rent a home instead. One elderly couple have found themselves in this position after the mortgage company refused to extend their mortgage due to their age.
Equally, landlords with a buy-to-let interest only mortgage may have to sell their investment property to cover the costs. You could find that when you take into account money spent on developing the property and any capital gains tax due, that you are left out of pocket.
What can you do?
- First thing is to check how much you owe and how much will be due for repayment.
- Then check any plans you have in place – endowment fund, savings plan etc – to see if they are performing on track and will make enough to pay off the mortgage.
- If your plan is to sell your home and use the equity to pay off the capital and buy yourself a smaller property, check your home value to ensure this is still a possibility.
Work out your options
There are ways to save the day, even if things don’t look good. You could:
- Switch to a repayment mortgage.
- Increase payments to help pay off some of the capital.
- Extend the length of your mortgage term to allow you to save more money or for your savings plans to come to fruition.
- Pay off some of the money you owe and then switch to a repayment mortgage to repay the capital by the end term of the loan.
The important thing is to act sooner rather than later. You can speak to your lender or a mortgage adviser to find out what your options are. Even if you don’t think you can afford to increase payments, talk to these experts – they will have some solutions for you.
It is vital that you do this as soon as possible, to give yourself time to make a difference – you might even save money on interest charges.
If you would like to discuss your interest-only mortgage, please feel free to contact us here at J Finance Ltd for unbiased advice.
Established in Berkshire in 2004, J Finance Ltd is one of the leading financial planning companies in the area. We serve clients across the South of England including Oxfordshire, Buckinghamshire and Hampshire. If you would like to discuss this subject or any other financial matter, without obligation, please contact us on 01635 521 300 or firstname.lastname@example.org.
YOUR MORTGAGE IS SECURED ON YOUR HOME. THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.