My Interest Only Mortgage is Ending Soon – What Are My Options?

Jump to a section;

  • What is an interest only mortgage?
  • Low-Cost Endowment Policies (1980s/1990s)
  • How can equity release help with my endowment mortgage?
  • Interest Only Pre-Credit Crunch (prior to 2008)
  • What other options do I have to pay back my interest only mortgage?

  • What is an interest only mortgage?

    An interest only mortgage, as the name suggests, is a mortgage wherein you will only be paying the interest per month, lowering your monthly outgoings, but leaving a lump sum mortgage balance to sit until your term ends.

    At the end of your term, you will generally use a repayment vehicle to cover the remaining balance in one go. Typically these days, new interest only mortgages are mostly commonly found in buy to let mortgages, as they can help landlords to maximise their profits, though they’re not exclusive to this area of mortgages.

    If you are an older homeowner, however, you may actually have an interest only mortgage of your own. Though less commonly encountered nowadays, residential interest only mortgages were very popular in the 1980s and 1990s.

    Low-Cost Endowment Policies

    Anyone who had taken out an interest only mortgage during this time period, will have likely been advised to set up an investment vehicle at that time, with a view to pay back the capital at the end of the term, once the investment had matured.

    Unfortunately, this wasn’t always the outcome and many of these policies were mis-sold, leading to financial compensation for many who chose to complain about their experience.

    Do you still have an endowment mortgage?

    Endowment mortgages are long since past their prime, no longer accessible as a mortgage option, though there may still be some homeowners out there with this type of mortgage.

    Perhaps they neglected to remortgage onto a repayment mortgage, with their endowment policy failing to pay out and the capital balance of their interest only mortgage still to pay off.

    As you head towards the end of your term, generally you will have had some level of correspondence from your mortgage lender, reminding you that you will need to pay back your remaining mortgage balance. It is not often something that would come as a surprise to a homeowner.

    How can equity release help with my endowment mortgage?

    If you had one of these previously, you will likely be an older homeowner now, nearing the end of your term and with your mortgage capital balance left to pay off.

    Whether you have the full amount to pay back or an endowment mortgage shortfall to pay back (this would occur if your endowment policy failed to pay the balance and there was still an amount left to pay), releasing equity from your home via a lifetime mortgage, can prove to be incredibly useful.

    Available to homeowners who are aged 55+ and with a home valued at least £70,000, equity release and later life products, such as lifetime mortgages, allow you to release a tax-free lump-sum from your home, as a means of covering a large portion of what is owed, if not, the full amount.

    Equity release isn’t for everyone. Speaking to a trusted and experienced later life mortgage advisor is a great way to learn the pros and cons of equity release and lifetime mortgages, to see if it is a viable option for you to cover the costs of your interest only mortgage, post-endowment policy.

    To understand the features and risks of equity release and lifetime mortgages, ask for a personalised illustration.

    A lifetime mortgage may impact the value of your estate and it could affect your entitlement to current and future means tested benefits. The loan plus accrued interest will repayable upon death or moving into long term care.

    I took out an interest only mortgage pre-credit crunch, what else can I do to pay back my mortgage?

    Of course, not everyone with an interest only mortgage did so with an endowment policy.

    Up until the financial crisis in the UK back in 2007-8, interest only mortgages were still heavily suggested by banks and mortgage broker alike, leaving many who are no doubt not too far off needing to repay their capital balance.

    Whilst equity release and lifetime mortgages could still be valid options for homeowners who are older, there are still plenty of options out there for a younger homeowner, who perhaps is nearing the end of their interest only mortgage term.

    Interest Only Mortgage Repayment Options

    Switch to a Repayment Mortgage

    Communication is always key to the mortgage process. If there are going to be any periods where you cannot afford to pay your mortgage, for example, you would always do well to let the mortgage lender know, as they may be able to work something out with you.

    The same applies with interest only mortgages.

    If you know you are going to be unable to pay back the mortgage capital balance at the end of the term, you would perhaps be best getting in touch with your mortgage lender, to discuss whether or not they would allow you to remortgage with them, in order to switch onto a repayment mortgage.

    Alternatively, getting in touch with an experienced mortgage broker like us, will allow you to scout a wider variety of deals in the mortgage market, allowing you to potentially remortgage with a different lender, onto a favourable repayment deal.

    Sell Your Home and Downsize

    If you are maybe ready to look at downsizing into a smaller, more comfortable home, perhaps with any children you’ve had now moved out, this could be a great way to pay back your capital.

    Not only would the sale cover the remaining mortgage capital balance, but there may also be enough left over from the sale, to put down as a deposit for your new, much smaller home.

    Savings or Family Assistance

    Another useful way to pay back the mortgage capital balance, is to use any savings you have been building up. Further to this, if you are due an inheritance from a family member at any point, this may be “fast-tracked”, allowing you to use this inheritance to cover your remaining balance.

    This may occur through your parents doing their own equity release, via a lifetime mortgage, if they are over the age of 55 and their home is worth at least £70,000.

    Speak to a Trusted Mortgage Advisor

    Whether you’re an older homeowner looking to make use of equity release, or a younger homeowner looking at other options available to you, we would highly recommend speaking with either a trusted a specialist mortgage expert today.

    Book your free remortgage review or later life mortgage appointment and we’ll look at the ways we are able to help you in paying back your interest only mortgage.

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