Repaying an interest only mortgage
Millions of borrowers are now coming to the end of Interest Only Mortgages taken out around 25 years ago and whilst the reasoning for it may have been right for their situation, the 25 years has flashed by and many find themselves in a position that they don’t have the savings or finances in place to repay their mortgage nor the possibility of extending the term over a longer period.
Janet and Peter
- In their early 60s
- Both currently have full-time jobs but planning to retire soon
- Own detached property valued at £275,000
- Have an outstanding mortgage of £56,000
- Low levels of savings
Janet and Peter’s mortgage lender has written to them, reminding them that their mortgage term expires in 12 months’ time and asking how they intend to repay the outstanding £56,000. They’re worried that if they can’t raise the capital to repay their mortgage, their home could be repossessed or they may need to sell and move from their family home in order to repay the mortgage..
They decided to go to their current mortgage provider and ask for their mortgage term to be extended, but they were told that was not possible. They then asked other high street banks if they could remortgage with them, but again were turned down. Having heard about Equity Release, they decided to see a financial adviser who was a qualified specialist Lifetime Mortgage adviser to find out more. After speaking with us and having carried out a full appraisal of their situation and plans it wasn’t possible that mainstream mortgage providers would be able to help them.
Having discussed the possibility of downsizing and other options with Peter and Janet, they decided against this as they didn’t want to leave their local community and they loved their home. Understanding this, we started to talk to them about an interest only Lifetime Mortgage as a possible solution.
We were able to explain that it operated in a similar way to their current mortgage. They could release some money from their home, and each month a fixed amount would be collected from their bank account by direct debit to service the interest. This would allow them to repay their existing mortgage without needing to move home, while allowing them to eliminate any interest roll-up on the loan and keep the loan balance level.
Janet and Peter decided to go ahead with the interest paying lifetime mortgage, thinking it was a sensible solution. They were able to clear their outstanding mortgage without giving up the home they had loved for 25 years, and had peace of mind knowing that, if and when their financial situation changed they could reduce or stop making interest payments if they needed to.
The product also had a ‘Reserve’ borrowing facility, allowing the possibility of borrowing a little extra in the future should they need it.
- Janet and Peter can stay in their home
- No threat of repossession, as long as they abide by the Terms & Conditions of the mortgage
- Eliminates the impact of interest roll-up
- They can continue to make monthly payments
- Monthly payments can be reduced or stopped if their circumstances change
- Potential for a ‘Reserve’ borrowing facility if needed in the future
Equity Release will reduce the value of your estate and can affect your eligibility for means tested benefits.
If your situation is similar to Janet and Peter, contact us today for a free initial appraisal and see if we are able to help
This case study is a worked example and is for illustrative purposes only. It is similar to clients we have worked with and have been able to help previously, but is not connected in any way with any of our clients. We will carry out a full confidential appraisal before making any recommendation. Our initial meeting is without charge and all costs will be outlined before you make any decision to proceed. Where possible, we only recommend Equity Release Council approved products and providers.