What happens at the end of my interest only mortgage?
Your home may be repossessed if you do not keep up repayments on your mortgage
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Interest only mortgages: making your final repayments when you term ends
Interest only mortgages are loans secured against your home where you repay only the interest on the amount owed each month.
Borrowers with interest only mortgages benefit from lower monthly payments but should have a repayment plan in place so they can repay the whole amount when the mortgage term ends. This could be in the form of regular savings, an investment vehicle or some other saving scheme.
Interest only mortgages in the UK
If you’re facing the end of your interest only mortgage, you’re not alone. New interest only mortgage products are much rarer nowadays, but 20 to 30 years ago, when savings rates were higher and house prices were generally lower, they were more popular.
According to data from the FCA in August 2023^, there were around 750,000 fully interest only mortgages (where the whole balance is being repaid on an interest-only basis) and another 245,000 where a portion of the loan balance is being repaid this way.
What happens at the end of my interest only mortgage?
You should be notified by your lender 6 to 12 months before the end of your mortgage term with details on the outstanding balance of the loan and how you make the final payment.
If your savings plan has worked as you intended and you have the funds available to repay the loan balance, that’s great, but like many others, you may not have the money to be able to pay off the mortgage.
What can I do if I can’t repay the balance of my interest-only mortgage?
Don’t panic. It can seem daunting to face a big bill for your home but there are options and, in our opinion, it’s better that you act sooner rather than later if you think you’ll be in this position.
You may be young enough to be able to take out a new, repayment mortgage to pay off the entire balance. Lenders’ upper age limits for borrowers have increased in recent years so, for example, if you’re 50 when your interest only mortgage ends, you could get a new repayment mortgage with a 20 year-term if you’re still employed and have plans to generate an income in retirement, like a pension.
If you’re over the age of 55 when your interest only mortgage ends, a later life mortgage could be the answer.
What are later life mortgages?
Later life mortgages are loans for homeowners over the age of 55.
When you’ve owned your house for a long period of time, it is likely to have increased in value. According to the Land Registry’s UK House Price Index, the average house price in England has risen from £75,219 in January 2000 to £299,162 in December 2023^.
Later life mortgages give people the chance to borrow money against the latest, higher value of their property which could provide the funds you need to repay your interest only mortgage.
How do later life mortgages work?
When you take out a later life mortgage, the lender will provide you with a loan secured on a ring-fenced portion of the value of your home, not the whole house, provided it is your main residence (although, we can find a solution for a later life mortgage on a property you don’t live in).
The money you borrow can be taken as a single lump sum or multiple, smaller amounts and is usually repaid when the last borrower dies or is taken into care (whichever happens first). You also have the option to make monthly repayments on the mortgage if you prefer which can be appealing to those clients still working well into their 60’s with a decent pension income and/or investments to help cover the cost.
Later life mortgages also place the portion of your home’s value owed to the lender outside of your estate for Inheritance Tax planning purposes, which could help you manage your bills. Please note, we cannot give advice on tax but could recommend a financial planner to help you if you don’t have one.
How will Mortgage Style help me with my interest only mortgage?
Our award-winning, experienced advisors will listen to your specific circumstances and discuss your options with you.
If you’re eligible for a remortgage, we’ll search thousands of deals on your behalf to find the most suitable product for you.
Where a later life mortgage is more appropriate, our Senior Mortgage and Protection Advisor, Kelly Flanagan, can give you the specialist advice you need to understand these options better and make an informed decision.
Trusted advice
We’re members of the Equity Release Council (ERC); the national body promoting the highest standards of advice and conduct in the Equity Release sector. You can read more about the ERC and how it’s helping people unlock the potential of their homes.*
Get in touch today
Talk to us about your situation and see how we could help:
contact@mortgage-style.co.uk
01275 370360
^Source:
1) FCA Research Note Interest-only mortgages
2) Land Registry UK House Price Index for England, January 2000 to December 2023
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP TO DATE WITH YOUR MORTGAGE REPAYMENTS.
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