Do you have an interest only mortgage and your lenders want their money back?

Interest Only Mortgage

Are you in the situation where you have an interest only mortgage? Perhaps the mortgage term has expired? Or maybe it is about to expire and you still owe money with no means of paying it? It’s a dilemma that many people are finding themselves in. However, it’s vital that you do not bury your head in the sand regarding this issue. There are solutions and the more quickly you address it, the better it will be. In the latest article from Paxton Equity Release we look at the different options that are available to you. These include practical solutions so that you can deal with your mortgage and have the money available to repay the outstanding balance.

Interest only mortgages explained

Interest only mortgages were more popular in previous years than they are today. Monthly payments were made to go towards the interest on the mortgage and not on reducing the total amount owed. With this type of mortgage, monthly repayments are much lower. The expectation is that people have the means to pay the balance at the end of the mortgage term. Buyers are really gambling on the fact that house prices will rise and the house can be sold to pay off the debt.

An endowment policy was often taken out with the mortgage designed to pay back the full amount at the end of the term. However, unfortunately these were often poorly managed and didn’t cover the amount owed when the mortgage had to be paid back in full, leaving many people with no means of paying the loan back. Others means of repaying could be a savings plan such as an ISA, pension or investment fund or a lump sum such as an inheritance or part of a pension. Alternatively the property could be sold with an option to downsize.

Options to consider if you want to keep your home

 But, what happens, if you find your self in this situation and don’t want to sell and want to keep you home? There are several options you can consider.

  • Switch to a repayment mortgage
  • Switch to a part repayment and part interest mortgage
  • Consider equity release

With the first 2 options, your lender will have to ascertain that you will be able to make the repayments. Older homeowners may find that banks are less willing to do this, as there are rules which restrict lending into retirement.

Equity release to pay the outstanding monies on your mortgage

With equity release you repay your interest only mortgage by getting a lifetime mortgage. Taking out this type of mortgage will allow you to stay in your own home. It is becoming increasingly common and a popular choice for older homeowners who live in the UK and have a leasehold or freehold property. However, you will have to fit several criteria to qualify.

  • The youngest person, if a couple, must be aged 55 or more for a lifetime mortgage
  • You will need a high amount of equity in your property
  • Your home needs to be valued at £70,000 or more
  • The property needs to be your main residence and in good condition and of standard construction

How can Paxton Equity Release help you?

The sooner you address the problem, the easier it will be for you. You’ll also have peace of mind that a solution has been found. If you are over 55 and feel that an equity release mortgage could be for you, it’s worth talking to Martin. He will make sure you understand what your commitments would be and whether it would be the right choice for you. At Paxton Equity Release we want to ensure that you have all the facts and the knowledge about equity release. This will ensure you have the confidence to make an informed decision. Please call Martin on 01892 617070 for a chat or email martin@paxtonuk.com

Think carefully about this information before deciding whether you want to go ahead. If you are at all unsure about which lifetime mortgage is right for you, you should ask your adviser to make a recommendation.

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