What mortgage options do you have if your interest only mortgage is ending?
Wednesday 30 January, 2019
Thomas Oliver’s Hertfordshire Mortgage Brokers and protection specialists, Vishal Gulrajani and Thomas Wheatley review the mortgage options available to anyone whose interest only mortgage is coming to an end.
According to journalist Sara Benwell over 150,000 interest only mortgages are due to end in the next two years, leaving people to pay off their full mortgage loans.
Buy-to-let interest only mortgages
If you have a buy-to-let interest only mortgage it wouldn’t be a problem as you could re-mortgage your property based on the rental you are receiving. Some lenders allow you to have these buy-to-let loans even when you are retired, which can help generate pension income. In a worst case scenario you could sell the property, repay the loan and keep any equity after capital gains tax or other costs are paid.
Unfortunately the majority of interest only mortgages are not for buy-to-let properties but for an individual’s sole residence so selling is sometimes not an option because it is your home.
Why did people take out interest only mortgages?
The first thing that many people will think, especially consumers that recently got a residential mortgage on capital repayment, is why and how were these individuals allowed to take an interest only mortgage. Over a decade ago before the recession and heavier financial regulation it was easier to get a mortgage and consumers chose interest only mortgages because of the cheaper mortgage payments.
What are your options if you took out an interest only mortgage?
Vishal Gulrajani, Mortgage Broker in Goff’s Oak & Cheshunt, Hertfordshire said:
The first option is to repay the loan in full, however most people won’t have the cash available to do this. Or you could sell your property and downsize. If you have investment properties remember you can raise finance on these. Another option is to extend your mortgage term or re-mortgage. However many clients that our Thomas Oliver mortgage broking team work with who have an interest only mortgage on their residential home are approaching retirement so a lender may not be willing to offer a suitable or affordable mortgage option. The final option which is becoming very popular is to obtain an equity release mortgage to pay off your loan. The good thing about an equity release mortgage is you can live in the property until you die and the payments can roll up and be added to the mortgage so you do not have to pay anything.’
Thomas Wheatley, Mortgage Broker in Tottenham, North London said:
‘Having reviewed the mortgage options for customers with an interest only mortgage it seems that there are many more choices now available. However clients should also be aware of the disadvantages of an equity release mortgage. Normally this would be used as a last resort, as it could be financially beneficial to use the other options. Therefore if you have an interest only mortgage and your term is about to end it may benefit you to seek mortgage advice as quickly as possible so you can get personalised financial advice. If you would like a free initial consultation please contact one of the Thomas Oliver mortgage advisers on 01707 872000. If you are retired or approaching retirement with an interest only mortgage you may benefit from speaking to one of our financial advisers who can assist you with inheritance tax planning as you may want to leave your property to your dependants. ‘