Many people during the 1990s and 2000s took out Interest Only mortgages which are coming to the end of their term or will be doing over the next 10 years or so. The aim of this post is to explain what will happen and what your potential options are when you Interest only Mortgage finishes.
What happens when my Interest Only Mortgage finishes?
Well, in short the lender wants their money back at the end of the mortgage. However, on the basis you are reading this post, it is probably because you are not in a position to clear the Mortgage when it becomes due.
Typically the lender will want their money back more or less as it falls due, however they can sometimes give a couple of months leniency, especially if you can show things are in progress. By that, they would want to see the house being sold or you cashing in stocks/bonds etc, in effect liquidising your assets to pay off the mortgage.
If that is not possible then you may need to look at a remortgage, either with your current Mortgage lender or a new lender. The difficulty here could be your age, your income, the lack of interest only mortgages on the market. It may well be that you are now going to be looking at a repayment mortgage as your only option.
Mortgage lenders do start the legal process of taking you to court in order to force the sale of the property if they can not see serious moves being made by the owner. In short they want that money back so they can lend it out again.
What happens if I do not have the funds to pay the Mortgage?
So as mentioned earlier, you could be selling the property to clear the mortgage and that would be fine. If that is something you would prefer not to do, then you need a new mortgage. We can look at your options with your current lender or a new lender. We can check affordability, credit reports and hopefully find a solution that works for you.
If you are an older borrower or your income is not sufficient, this could be an issue. In that instance we may need to look at an alternative such as an equity release mortgage.
The key thing is to be prepared. If you have 6-12 months, lets have a chat and discuss your options at a relaxed stage and come up with a plan of action on your terms. If you have less than 6 months or worse you have gone beyond the mortgage end date things are a lot more stressful and rushed. That does not mean we can not help, it just means we need to move much more quickly in finding an alternative.
At that point we have pressure being applied from the lender. We can speak to them on your behalf (with your permission) in order to explain where we are up to, what we are doing and the time frames we need. There is no guarantee they will accept what we propose but having a Mortgage broker on side may help in delaying any legal proceedings against you.
What should I do?
If you are currently on an Interest Only Mortgage and you have some time on your hands and no repayment strategy in place, why not make a start on overpaying your Mortgage?
If we assume you have a £100,000 mortgage and 5 years left, overpaying by £150 a month can reduce your balance by £9,000. If you have 10 years left, that means over £18,000. You may find that when it comes to the end of the term, you have more options available to you as you have a smaller mortgage or even your current lender being prepared to allow the mortgage to carry on as they can see you are making inroads to clearing the balance.
If your Interest only mortgage is coming to an end or has ended and you do not have the money to clear it you should get in touch as soon as possible. We can go through your circumstances and investigate your options. Once we have some plans, we can speak to the lender if necessary and go from there.
It is very important to get on top of the situation and not put your head in the sand. It is very possible the lender could force a repossession through the courts and also add on their costs. Better to manage the situation on your terms rather than theirs.
Please do get in touch and we will work with you to get you the best outcome we possibly can well before the date your Interest only Mortgage finishes, to let you plan ahead.