It may have been two years, five years or even 25 years, but the completion of your interest-only mortgage term signals “crunch time”. This is the point at which your repayment plan needs to kick into action, covering the loan amount it was to repay.
Whether you are selling up and downsizing to cover the loan (an option made freshly re-available by some providers) or using a pension scheme to pay, it is important to know what to expect at this crucial point in your interest-only mortgage. This guide will explain it all…
Extending the Term
If you are approaching the end of your interest-only mortgage term and have concerns that you may not be able to meet the capital repayment, you may be considering extending your mortgage term.
While the FCA (Financial Conduct Authority) handed down guidelines in 2015 stating that providers should deal fairly with interest-only mortgage customers, offering options to improve their position, there are usually stringent criteria which must be met to qualify for an extension. For example:
- Having enough equity, income or a solid repayment vehicle in place
- Not exceeding the provider’s upper age limit
When you first applied for your interest-only mortgage, you should have been required to demonstrate an acceptable repayment plan for the capital owing at the end of the interest-only period.
There are a number of repayment options (also known as repayment vehicles) you may have chosen. Now it is time to put those vehicles into action. Options you may have chosen could include:
- Stocks and shares ISAs
- Pensions schemes
- Unit trusts
- Investment bonds
- Expected windfalls (from inheritance, asset sales etc.)
- Cash savings
- Other properties
- Downsizing your current property (this option now available from some providers)
- Selling your current property and moving in with relatives
What Happens If You Can Not Repay?
If you can not extend your mortgage term and you can not repay the capital, there are many alternative options to possibly be able to consider such as, but not limited to:
- Switching to a full capital repayment basis or “part and part” mortgage
- Making over-payments
- Using savings to reduce payments on a new capital repayment mortgage
- Taking out an equity release plan
- Downsizing your property
- Using your pension tax-free lump sum
The options available to you will vary widely depending on your personal circumstances and your mortgage provider. If you believe you will struggle to repay your interest-only mortgage, contact your provider as soon as possible to discuss a possible solution. If repayment becomes impossible, advice from services such as StepChange and Citizens Advice may be helpful.
Searching for a realistic interest-only mortgage which will work for you? We know the industry inside out. Contact the knowledgeable JMB team today to discuss your requirements and to find a smart mortgage solution: 0800 114 3978.