Changing from Interest Only is not a job for ‘tomorrow’.

Changing from Interest Only is not a job for ‘tomorrow’.

Most weeks, I try to bring a bit of humour, sarcasm and light heartiness to a relatively uninteresting, but extremely important part of most of our lives.  How else could I entice you to read a column about mortgages!?   However, I need to be serious this week and discuss the huge issues surrounding mortgages on an ‘Interest Only’ basis.   

Many have taken out mortgages on an Interest Only basis.  To clarify Interest Only – if you take out a £100k mortgage loan over 25 years on Interest Only, at the end of the 25 years you will still owe the lender £100k!  As the term says, you are only paying the interest on the loan borrowed.  Historically, many also contributed to an endowment policy that acted as a savings plan which would hopefully match the outstanding loan at the end of the term.  Enough said!   Today, ISA’s are normally the preferred savings vehicle but many have not carried on with the savings plan as other distractions have, for whatever reason, taken priority.

Lately, we’ve seen many who have just a matter of years left on their Interest Only mortgage with no repayment vehicle in place.  The stark reality is that unless they can afford to repay the mortgage over a short term on a Capital & Interest basis, they risk losing their house when the lender demands repayment of their debt at the end of the contractual period. 

Where the big problem lies is that many consumers suggested that their repayment vehicle would be ‘sale of property’, i.e. they would downsize at the end of their mortgage, normally coincided with a retirement date.  The issues, more recently, may well include house price decline and there may no longer be enough equity in the property to downsize and still purchase a suitable property to live in. 

Arranging a repayment vehicle for an Interest Only loan is not a job for ‘tomorrow’.  As we all know, tomorrow never comes.  So, do it now!  Sort out a plan of action and put it into motion.  Speak to your current lender or mortgage broker and see if you can change to a repayment option.  There may be other options available to help you achieve repaying the loan over a specific time period.  But don’t delay…the clock is ticking!