Tens of thousands of people with interest-only mortgages expiring this year do not have a repayment plan in place. This puts their homes at serious risk of repossession.
82,100 mortgages totalling circa £9.7bn will mature in 2020, according to the Financial Conduct Authority.
The ins and outs of interest-only
Unlike a repayment mortgage, where the borrower pays off the capital and interest on their loan each month until the debt is cleared, an interest-only loan offers a cheaper monthly premium but requires a single repayment of the capital at the end of the term. Normally this is cleared using the proceeds from a separate investment vehicle.
For example, a £150,000 mortgage at 5% over 25 years would cost £877 per month on a repayment basis, but only £625 per month interest-only. However, the latter leaves the original £150,000 capital debt to be repaid.
Don’t get trapped
If you have an interest-only mortgage but you don’t have a repayment vehicle in place, it is critical you review your finances as a matter of urgency. Depending on the term left on the mortgage you could set up a repayment plan now, or you could look at switching to a repayment mortgage however this may mean higher monthly repayments.
Another option could be to sell your home and downsize – something that may be possible if older children have flown the nest but nevertheless a difficult decision if you don’t want to lose a cherished family home.
If you are concerned about your mortgage and would like to know your options please get in touch with Property Debt NI.