Interest-only Mortgage Expiring – what happens next?
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Interest-only Mortgage Expiring - what happens next?
With an interest-only mortgage, at the end of the term you need to repay the amount you borrowed in full. We explain how this works and the options available to you.
What happens when my interest-only mortgage comes to an end?
Many people choose interest-only because they have much lower repayments than a capital repayment mortgage. With this kind of product, you’re not repaying the loan itself, so when the mortgage ends you will need to pay back the amount you originally borrowed.
There are a few options to consider at this point, and a mortgage broker can be a helpful source of advice and support.
Typical ways that people pay off the mortgage in this situation include:
- Selling the property – or another home that you own
- Repaying with a lump sum from your pension
- Using money from investments
What are my options if I can’t repay the capital of an interest-only mortgage?
Not everyone has the money available to pay off the loan in this way and have to explore other options.
Most commonly, people will look to continue the mortgage, either by asking the lender to extend the loan or by remortgaging with a different provider. This is usually possible as long as you have a steady income.
But if you are approaching retirement age that can be challenging. Older borrowers can instead choose to take out a form of retirement mortgage. Once you reach 55 you may qualify for a Retirement Interest Only mortgage or a Lifetime Mortgage. These will allow you to remain in your home for life, with the money you’re borrowing repaid from your estate after you pass away.
How long can you stay on an interest only mortgage?
A typical interest only mortgage lasts between five and 25 years. It’s possible to remortgage to a new deal at any time, which is often a good idea if interest rates have changed.
You can also remortgage at the end of the deal – but you will need to meet affordability criteria. It can be more challenging if you have an unpredictable income, you will be over 70 at the end of the mortgage term, or if you have bad credit.
Can you extend the term of an interest only mortgage?
Some lenders will allow you to extend the mortgage, especially if you’re waiting to receive the funds that will repay the amount you owe. You may need evidence of the money you have available – in a pension, another property or other investments.
Can I get an interest-only mortgage at 60?
Getting a mortgage is all about meeting the lending criteria. At 60 years of age some lenders will accept you for a standard mortgage, provided that you can evidence that you have sufficient income for paying the interest each month.
Another option in retirement is a Retirement Interest Only (RIO) mortgage, where you continue to make monthly payments, but there is no set term. The loan is repaid with the sale of your home after you die.
Can you claim back on an interest only mortgage?
If you took out an interest only mortgage and feel you were not given enough information about how it works and the risks involved, you may be eligible for interest-only mortgage compensation. You will need to have evidence of why you feel the product was mis-sold. Seek legal advice if you believe you are in this situation.
What are the advantages and disadvantages of an interest-only mortgage?
The key benefit of an interest-only mortgage is that the monthly payments will be cheaper, which also means you could potentially borrow more.
The main drawback is that you don’t pay off the loan as you go and you won’t ever own the property outright – unless you switch to a capital repayment mortgage. Repaying the outstanding balance at the end of the term can be very challenging if you haven’t had a repayment plan in place.
Will the lender repossess my home?
Ultimately, if you cannot pay back the amount you owe on your interest only mortgage, the lender is entitled to repossess it.
This will be a last resort, however, so talk to your lender and mortgage broker before the loan is due to end. There will often be an option that will mean you can keep your home.
How can Mortgages by McAteer help?
The most important thing with an interest-only mortgage is not to bury your head in the sand. If you are unable to repay the loan, seek advice as soon as possible. If you are nearing state pension age, we can help you explore options such as equity release or other types of residential mortgage that will help you keep your home.
We work with many specialist lenders and are an appointed representative of The Openwork Partnership, which is a trading style of Openwork Limited which is authorised and regulated by the Financial Conduct Authority.
Mortgages By McAteer will refer you to a third-party agent for any equity release options.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE