Do you have an interest only mortgage?

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Your home may be repossessed if you do not keep up repayments on your mortgage.

It is estimated that 600,000 interest-only mortgages are due to expire by 2020, so it’s important to put plans in place tackle the shortfall as soon as possible if you are one of these people.

Interest only mortgages have historically been popular because it has kept monthly repayments to a minimum and enabled buyers to own a larger home or a home in a preferable area. It means that they had lower monthly outgoings given that they aren’t repaying the loan.

Since the credit crunch, interest only mortgages are much less common as lenders have much more stringent lending criteria. Ten years ago, buyers could obtain an interest only mortgage without having to provide evidence of an investment plan to enable them to repay the shortfall at the end of the mortgage term.

The majority of policies were likely to have been sold with mortgage endowments, providing a way for buyers to repay the loan but this could have been underperforming and still leave a shortfall. Others may have relied on an inheritance or other windfalls to cover the final bill.

If you come to the end of an interest only mortgage and cannot repay what is owed you could be at risk of losing your home, and that’s why it’s seen as a ticking time bomb.

The Financial Conduct Authority (FCA) consumer groups are working with those with an interest only mortgage to help them resolve the situation they may find themselves in.

According to Which? buyers need to assess their financial plans to see if they can pay the amount in full. Check how much of your endowment will be available when the policy ends because if you act early enough you may be able to switch to a repayment mortgage or overpay on your repayments.

Remortgaging your property is possible with the same lender, or they may even extend the term of your existing mortgage (although you may need to move to a higher rate). But remember that your existing lender is allowed to offer you a new deal provided it doesn’t involve increasing the amount you borrow, aside from the switching fees.

In some cases, people are unaware that they have not been paying off the capital – for example a window or widower may not know details of the type of mortgage taken out.

If you have an interest only mortgage the key is to get advice as eraly as possible to give you time to plan. Talk to us at to Derngate Wealth today to find out the best course of action.

https://www.theguardian.com/money/2018/mar/19/interest-only-mortgages-payment-shortfall-remortgage-lenders

March 23, 2018adminBlog

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