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Interest only term ending

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 6, 2023

If your interest-only term ending? These are your options and what you should do next

The mortgage balance date and complete loan repayment seemed far away when you took out an interest-only mortgage many years ago. Now that the interest-only mortgage ends, you might have many thousand to pay in one lump sum.

It is best to have your original repayment mortgage plan in place and ensure you have enough money.

There’s no need to panic if you don’t have your original repayment plan, there are many options.

This guide explains them all. It also explains what to do if your payment is late or if you can repay sooner than expected.

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What happens when an interest-only mortgage term ends?

A borrower must repay the outstanding balance of the borrowed amount when an interest-only mortgage is over.

This mortgage only pays the interest on each monthly payment, leaving the loan balance to be paid until the end.

Mortgage lenders will contact you at least one year before your mortgage term ends to remind you about the deadline. Then again, at six months and again as the final date nears, The lender will send you a redemption statement detailing the amount due.

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There are many repayment options.

As part of your interest-only mortgage application, you will have to share your repayment mortgage plan. This is the method you intend to repay at the end of the mortgage term.

You could have plans to sell another property, invest in stocks, shares, or other investments, or you expect to receive an impending pension, endowment, or retirement policy to pay the loan back.

If you are lucky, your original loan repayment arrangement will still be in effect, and you can take that into practice. However, if circumstances have changed, you may be able to take other options for your end of the mortgage term:

  • The property may be sold if the sales price is sufficient to cover the loan amount.
  • You might consider selling a property you don’t own: This is an option if the property is more valuable than the loan.
  • You could also sell other assets like stocks, bonds, or even a boat to generate the income you need to repay your debt.

Savings or a pension: This could be a great way to pay off your debt and get your house.

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What happens if your mortgage is not paid off by the due date?

If none of these options works for you and you cannot repay your mortgage term, there are still other avenues you can pursue.

A mortgage broker specialising in interest-only mortgages can help you decide which option is best.

Ask your lender for a mortgage extension.

Although the length of a mortgage term is typically set at the beginning of the agreement, lenders may be open to terms being extended. To give your repayment plan more time, you could ask for a 10-year extension.

The lender will want to know that you can make the payment at a later date. They’ll assess your income and ask for details about your repayment plan. If you are over 75, some lenders may not extend terms.

Talk to a broker to discuss other options, such as Loan Corp:

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You can try to get a new interest-only mortgage from a different provider if your lender refuses the mortgage extension. You’d have to go through the same process as previously, including having your income and expenses assessed along with your credit history and any outstanding debt. Also, you will need to prove once again that your repayment plan is viable.

An interest-only broker can compare rates across the entire market and find you a lender. If you are self-employed, have poor credit, or don’t know how you’ll repay the loan, this could be for you.

Change to a capital repayment agreement

You could speak to your lender to discuss changing the interest-only mortgage to a payment model. This would allow you to pay off the interest and a portion of the loan each month. This would lower the amount you would have to pay after the new term. This can be done if your lender won’t allow it.

Remortgage to a retirement interest-only (RIO) mortgage

While age can sometimes make it difficult to get a mortgage, a retirement mortgage allows borrowers over 55 to repay the loan once they pass away, sell their home, or enter care.

To ensure an interest-only mortgage is feasible, you should speak with a broker before signing.

  • Any equity you have to repay the loan can be used – Your property could have been appreciated since you purchased it, giving you positive equity. To pay the loan back, you could release some equity. Most lenders will require that you are between 55 and 95 years old to qualify for the equity release program. Your age and the value of your property will determine how much you can release. A professional advisor can help you with this process.
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How a broker can help with the selection of the right solution

A specialist lender can help you determine the best repayment option for your situation, whether it involves simple repayments or more complicated arrangements.

A broker can negotiate any process involving remortgage, equity release, extension, or shift in terms. They will also tap into their network of lenders to help you find a new deal. A broker can help you:

  • We can offer you personalized advice on interest-only mortgages
  • Discuss all options with your partner and ensure you pick the best option.
  • We can help you find the best deal for remortgage and equity release
  • We can handle all paperwork
  • Provide ongoing advice on your mortgage moving forward

There are many moving parts to a stressful situation. The brokers we work with can provide consistent support and ensure you get ahead cost-effectively and comfortably.

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What happens if your equity is negative?

The market could fluctuate, and your property’s value has dropped. In this case, the mortgage may be larger than the property’s actual value. This is negative equity.

To help you pay off your mortgage faster and to let the market change, it’s a good idea first to discuss the possibility of a mortgage extension. A broker would lay out any other options.

A mis-sold interest-only mortgage

You might be able to file a complaint with the financial ombudsman if you believe you were sold a mortgage on poor advice or without proper explanation.

Talk to your lender to discuss how you can modify your agreement to make repayments more feasible.

You can file a complaint if they refuse to cooperate with you in resolving the matter.

The financial ombudsman will assess both sides of the situation, but they will want to ensure you have tried your best to resolve with the lender.

If they suspect a miss-sale occurred, they will usually urge the lender for a solution. The last resort is to go to court.

Early repayment of your mortgage

After you have done all the calculations, you may be able to pay the entire loan amount off before the end of the term.

You must confirm with your lender if this is possible and whether you have chosen a fixed or variable interest rate.

You may be charged an early repayment fee if your interest rate is fixed.

This charge is typically a percentage of the remaining loan amount, usually between 1% to 5%.

Experts can advise you on the best way to use your extra funds.

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Talk to an interest-only broker.

Expert advice is essential when you are trying to repay an interest-only mortgage. Many options are available, and each one can majorly impact your finances.

A specialist interest-only broker can help you.

The brokers we work alongside have access to an extensive back catalogue of case studies and relationships with lenders in the interest-only sector. They can help you navigate your options and find the best solution for you.

Call today or complete an enquiry form for a no-obligation consultation.

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What if my interest-only mortgage is preventing me from selling my house?

Yes. You can sell your house any time and use the proceeds if they are not in negative equity to pay the mortgage.

Are you able to make extra payments on an interest-only mortgage

While it is possible to overpay an interest-only mortgage, this would not be the case with a capital repayment mortgage. It may contribute to future interest payments. It would not affect the amount of equity in the property or the outstanding mortgage loan.

If your loan allows, you could pay more into your repayment vehicle to build up funds or pay off your loan earlier than expected.

What happens if my lender doesn’t contact me about repaying the loan?

You can contact your broker or lender anytime to enquire about when your repayments are due and confirm the amount owing. Click the button below to start for free:

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