What To Do With Your Interest-Only Mortgage
A year ago the UK Mortgage Market Review was launched and our real estate industry was turned upside down.
Under the new rules, not only were lenders forced to impose stricter requirements on mortgage applications, but it also led some lenders to completely pull the plug on popular mortgage offerings such as interest only mortgages.
Now that affordable mortgage options are being pulled out of the market, aspiring homeowners (especially the first time buyers) will have a much harder time financing a property.
But this change doesn’t impact prospective buyers alone. According to an article from the HomeOwners Alliance entitled “On the Edge”, around 300,000 homeowners are considering the possibility of selling their houses in order to repay their interest only mortgages, while 400,000 are unsure if they have enough money for the repayments.
Aside from that, existing mortgage holders will now have to provide proof of an acceptable repayment vehicle like equity, ISAs, pensions, shares, endowments, etc. if they want to switch to another lender.
What do you do now if you have an interest-only mortgage? Do you just curl up and cry at the corner of your house waiting for impending eviction? The obvious answer is a big NO! Here are some options to consider if you have an interest-only mortgage:
• Go back to the start
Read your mortgage contract and other related paperwork very thoroughly and speak to your lender about how much you still owe and when will it become due.
• Plan your payment scheme
After getting all the important information about your mortgage, you can start constructing a new payment plan for your account or create one if you don’t have one yet.
If you have significant equity in your house, you can use your lender’s existing repayment plan to wrap up the contract. However, if you don’t have good equity, prepare for a tougher road ahead. You may find it difficult to remortgage when your existing deal comes to an end or you can also face the real risk of eviction if you can’t make the capital repayment.
You can also talk to your lender about making an overpayment on your loan. That is if you have enough reserve money to pay the value of your mortgage.
• Get the payout
If you took out an endowment policy to repay your capital cheque, now’s the time to cash out. The only catch is that payouts nowadays aren’t as huge as they were before the GFC. Top policies are returning payouts as small as £35,000, while back in the day the amount can go up to £100,000.
People over the age of 55 could also enter into an equity release scheme with his or her lender so that they can tap into the value of their property without selling and moving out. This equity, in turn, can be used to pay down what they owe the lender.