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Are you on an interest only mortgage and need to pay your debt?

Are you on a interest-only mortgage for your home or your buy-to-let property? If so, and you have no plan to pay back the capital, you are not alone. However, it is absolutely essential that you create a plan as not only could it be difficult for you to remortgage at the end of the term, but also your property could get repossessed as the worst case scenario.

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

You are not alone

It is estimated by Citizens Advice that as many as a million homeowners may be lacking any form of repayment plan for their interest only mortgage.

On average, it is estimated their mortgage debt will be around £70,000.

There are some initial options that would likely provide a solution:

  • Downsize
  • Relocate to a cheaper area
  • Sell and capitalise (if it is a buy-to-let)

However, many people want to stay in their home or certainly don’t want to be in the position where they are forced to sell-up as there is no other choice.

Planning ahead and making sure

If your property has more than 50% equity, and you have a repayment plan that is on track to deliver the capital value at the end of the loan, then the chances are you will be able to find a new mortgage when your current arrangement finishes.

It is important though to consider that since 2014, new affordability checks were introduced on mortgages and remortgages, so some homeowners have been finding they don’t meet the new criteria, which leaves them limited when it comes to their mortgage options.

With interest-only mortgages is vital to review your repayment plan with your financial adviser regularly to ensure it actually is on track and to help ensure you don’t get yourself into a difficult situation. 

Steps to take:

  1. Contact your financial adviser to assess if your investments are in line with expectations to repay your  mortgage at the end of the term
  2. Add extra savings beyond your repayment plan investments to get a true picture of your financial position
  3. Discuss with your mortgage broker the option to make structured overpayments or switching to a part-repayment mortgage sooner, to relieve some of the pressure
  4. Any concerns about not being able to pay back your repayment, for example if you have a short time frame to do so, your financial adviser will be able to look at all your options with you.

Ways to pay back your capital

If you don’t have any repayment plan at all for your interest-only mortgage, then here are some repayment vehicles you should be considering:

  • Cash savings or ISAs
  • Stocks and shares ISAs
  • Pensions
  • Investment bonds
  • Shares
  • Trusts
  • Endowment policies
  • Other properties
  • Other assets

Because the performance of investments can rise and fall, it takes expertise to track your repayment plan and ensure all elements are regularly reviewed.

There is always the slim chance that your investments may lose out before the time you have to pay off the capital of your mortgage.

As with all financial planning, the longer you have to plan ahead, the less the risk.

Need help for your interest-only repayment plan?

darren-scott-guinness-financial-adviserDental & Medical Financial Services have been helping doctors and dentists with financial and mortgage planning for over 25 years. Call to discuss your options with Darren:

Tel: 01403 780 770


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