Interest Only Mortgages Coming To An End – Whats My Options?
My Interest only mortgage is coming to an end – what are my options?
If your interest only mortgage is coming to an end, your options would normally fall under the follow four key headings:
- Sell your house/use your savings
- Switch your mortgage on to a repayment or part repayment basis
- Equity Release Mortgage
Sell your house/use your savings or investments
Many people approaching the end of their interest only mortgage will have been in the property for a good number of years. As a result, they will often have built up a sizeable amount of equity in the property. Often, the property may now be considered too large for them, particularly if it was originally the family home to bring up children who have now “flown the nest.”
It may therefore be suitable to “downsize” to a smaller house and pay for it from the sale proceeds either without the need to take a further mortgage, or perhaps only needing a much smaller one. Depending upon their age, some may even prefer to sell and move into rented accommodation in the form of specialist retirement apartments or communities. However, not everyone is happy to leave the property which may hold so many memories and so for them other options may be more suitable.
In an ideal world you may have planned your finances so well that you have the ability to simply clear the mortgage from your savings or from a lump sum from an impending pension fund pay-out.
Switch your mortgage on to a repayment or part repayment basis
You could look to change the basis of your mortgage to “capital repayment,” either by speaking to your existing lender to rearrange your mortgage terms or by remortgaging the property to another mortgage lender. The advantages are that you can stay in your own home and can pay off the mortgage balance over a further period of time. This could be attractive, particularly if you are still in employment. There are also lenders who will potentially consider lending to you beyond normal retirement age, with some even allowing a mortgage term that would take you up to the age of 80.
If you know you will have a lump sum coming in the future that may pay off part of the balance, they may allow you to switch to a “part repayment/part interest only” basis. Remember though, that switching in these ways will increase your monthly payments and, depending how long a term you will be allowed to repay over, this increase is likely to be significant. It would also mean that you will almost certainly need to prove that you will have the wherewithal to make monthly payments even in retirement, so proof of pension funds including projected pension fund values is likely to be required and, depending upon your age and circumstances, there is no guarantee that lenders would agree to granting a mortgage of this type.
Equity Release Mortgage
Many people now consider the option of an Equity Release Mortgage as a way to stay in their own home whilst, at the same time, reducing their monthly outgoings. The general idea with Equity Release Mortgages is that any interest charges would be rolled up and added to the balance of the loan, meaning you do not have to make any monthly payments unlike a traditional mortgage where, typically, you would have a monthly commitment Clearly the lenders would want to get their money back at some point, but this would usually be either when you sold the house or ultimately upon your demise. When the property is sold, either by you or your estate, the original loan plus all the accumulated interest would be paid off. Although this means your debt will be increasing, there is the possibility that your property value will also have risen so there still be a reasonable amount of equity left in the property for you to leave behind for your successors.
Equity Release Mortgages have developed enormously in recent years and have incorporated a number of flexible features which may provide suitable options for you and your family. Whilst not the solution for everyone. If you are over 55 and with a large amount of equity in your property, they could well be worthy of serious consideration.
At hullmoneyman, we’ve a history of providing you with bespoke, detailed, local mortgage advice as to what may be the most suitable way forward in your particular circumstances. To add to this local service, we’ve now teamed up with Equity Release Specialist and between us, we’d be happy to come to meet you in the comfort of your own home to discuss any questions you may have on anything mentioned above.