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What does the future hold for interest only mortgage holders?

What does the future hold for interest only mortgage holders?

The Council of Mortgage Lenders estimates that around 20% of mortgages in the UK are interest only.  This equates to approximately 1.9m homeowners who are only paying the interest on their mortgages.  Some of these homeowners could be in trouble when their mortgage terms come to an end.

As a home owner with an interest only mortgage, when your mortgage term does come to an end, you will need a repayment vehicle to pay off the capital element of the mortgage.  If you do not have the funds available to pay off the capital, you will need to re-mortgage your property.  If you are not able to get a mortgage perhaps due to your age, you may have to sell your home or consider an equity release scheme.

If you fall under the latter, you should bear in mind that interest rates are usually higher on equity release schemes.  However, there are no monthly payments as the interest is added to the original loan.  Should you then decide to sell your house any time in the future, the equity will be less than when you started.

If house prices were to fall, then there is also the danger that homeowners may not be able to re-mortgage their property without putting down another deposit – this is not an option for a lot of people.  Furthermore, if interest rates were to rise, then homeowners with interest only mortgages could be further affected if they were to re-mortgage their house.

Interest only mortgages were common place prior to the financial crisis and a lot of homeowners did take them out as it meant lower repayments on their home loans and also allowed them to fund more expensive houses that they would not be able to otherwise afford.

If you are coming towards the end of your interest only mortgage term, you should speak to your current lender and review what options may be open to you.  Your lender may be able to extend your mortgage term for you and offer you a repayment or part repayment mortgage.  However, as with most things this will depend on your age and affordability.

It is much more difficult today to get an interest only mortgage, however this does not help those who already have one and are coming towards the end of their term.  If you do have an interest only mortgage nearing completion, it would be advisable for you to sit down with your broker or speak to your lender to determine what options are open to you.  There are a lot of products currently available in the marketplace and unless you speak to someone, you won’t know what they are.

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