The Broker: Mortgage advice from the experts mouth - What happens after your interest only term comes to an end?
Posted on 12 October 2016 by
Mostly, coming to the end of your mortgage should be a time to celebrate - and if you have a repayment one, seeing that zero balance will give you a very warm, satisfied glow. However, if you have an interest-only loan and don't have a repayment vehicle in place to pay it off, then the feeling as the end date approaches is likely to be very different. The Council of Mortgage Lenders estimated at the end of 2015, that there were 1.7million pure interest-only mortgages outstanding, with a further 500,000 on a part interest-only, part repayment basis. Some 20,000 borrowers with interest-only loans without a repayment plan were thought to be maturing this year alone.
For borrowers in this situation the future can look bleak and selling up may seem like the only option, but fear not, all is not lost. More and more lenders are recognising that as we are not only living longer and working longer, we are likely to want to borrow for longer, too.
We are seeing an increasing number of lenders who are now lending up to a maximum age of 85 and a few who will even go to age 95. Now the thought of still having a mortgage at that age may not be too appealing, but for someone with an interest only loan coming to the end of their term, it does at least give them some options.
You could take another mortgage out again on an interest-only basis, or you could go to a repayment one, or split the loan and go part repayment and part interest. Much will depend on your position, affordability, when you want to retire and how much the lender says you can afford, etc.
It's not an exact science, and advice needs to be tailored to each individual situation, but it does give you some light at the end of the tunnel. Also, equity release could be a solution for some, but for those still working and able to carry on, there are more than 25 building societies that will lend up to a maximum age of 85, so why not consider another normal mortgage contract? Many of the mutual lenders also underwrite on a more manual basis and so can take a more pragmatic approach.
One important thing to consider now, though, is how are you going to repay the mortgage this time? If you do elect to go for another interest-only loan, what's the strategy? There's nothing wrong with 'downsizing' as an option as long as you have a certain amount of equity in your property, or can show that this avenue is plausible.
Generally speaking, interest-only loans are now taken out only by the more financially savvy borrower, but there are a lot of people who took these loans out during the heady days of easy credit and rampant property prices, who now need help and as brokers, we are ideally placed to help them.
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