Why Are Interest Only Mortgages Causing Trouble For Homeowners?
Citizen’s Advice Bureau have warned that nearly a million UK homeowners are soon to face a harsh reality when their interest only mortgages come to an end and they have no way to pay off the capital of their mortgage.
What is an interest-only mortgage?
Interest only mortgages allow the homeowner to just pay the interest on their mortgage loan monthly. This means they do not contribute towards reducing the actual debt. A bit like making the minimum payment on a credit card that just covers the interest. The idea is that at the end of the mortgage term the homeowner will repay the loan amount from another savings source. It’s true that this comes with the benefit of a cheaper monthly expense. But it’s the burden of trying to find significant funds at the end of the mortgage term.
The scary reality is that for almost 1 million UK homeowners who don’t have a plan for the end of their mortgage term is that they could face having to sell their home to repay the debt. Or worse have it repossessed if funding is not available.
New rules for interest only mortgages
The rules on interest only changed three years ago. Lenders are now expected to insist you have a strategy in place to develop a large enough lump sum to repay the mortgage loan. And we think this is a good idea considering the current state of the interest-only mortgage boom. More on that below.
The peak of the interest only mortgage boom was in the 1990’s meaning that these mortgage terms will be reaching their maturing peak period in 2017. The BBC have reported that banks and building societies have been told by regulators that they must write to their customers. The letters should warn of financial danger and offer solutions or advice.
A solution to the interest only mortgages problem
There is a light at the end of the tunnel for homeowners on interest-only mortgages. With interest rates so low you could potentially switch to a repayment mortgage for a fractionally higher monthly outlay.
If you’re on an interest-only mortgage and would like to talk about your options then contact our independent experts who can advise you further.
It costs less than you may think to obtain professional advice that could save you £1000’s