If your interest-only mortgage is approaching maturity and you cannot repay the outstanding capital, several options may be worth exploring. These can include extending the existing mortgage, refinancing, a Retirement Interest Only mortgage, a lifetime mortgage or selling the property.
An approaching mortgage maturity date can create uncertainty, particularly for homeowners who have retired since originally taking out the loan.
However, it is important to assess the available options before assuming that selling the property or taking out equity release is necessary.
Why do interest-only mortgages create challenges?
With an interest-only mortgage, monthly payments cover interest rather than reducing the capital balance.
At maturity, the outstanding loan must be repaid.
Where the original repayment strategy has not performed as expected, or circumstances have changed, the borrower may face a shortfall.
Can the existing mortgage be extended?
Some lenders may consider extending the mortgage term or offering another arrangement.
This depends on their policies, the borrower’s circumstances and the proposed repayment strategy.
Contacting the existing lender well before maturity is important.
Could refinancing provide a solution?
A new mortgage may be available where income, affordability and repayment requirements can be satisfied.
A Retirement Interest Only mortgage may offer an alternative where monthly interest payments are sustainable.
A lifetime mortgage may also be considered, although the effect of interest roll-up and long-term borrowing costs must be understood.
What if selling the property is necessary?
Selling or downsizing may provide a means of repaying the outstanding debt.
However, the decision should take account of housing requirements, transaction costs, family circumstances and the availability of suitable alternative accommodation.
The importance of early planning
Leaving the issue until the mortgage reaches maturity can reduce the time available to explore alternatives.
At Henry Dannell, we focus on understanding the full financial position and assessing viable refinancing strategies.
Frequently asked questions
What happens when an interest-only mortgage ends?
The outstanding capital becomes due under the mortgage agreement.
Can I extend an interest-only mortgage after 70?
Some lenders may consider extensions, subject to their criteria.
Do I have to sell my home?
Not necessarily. Refinancing or other arrangements may be available.
Discuss your refinancing options
If your interest-only mortgage is approaching maturity, Henry Dannell can help review the possible routes and their implications.