The clock has been ticking on interest only mortgages for several years now. More and more plans are coming to an end, and they're leaving borrowers saddled with a lump sum that needs to be repaid. For those without a strategy for paying back the outstanding debt, this could be causing a lot of worry and sleepless nights.
Many borrowers will have had a repayment plan in place when they first took out their interest only mortgage. Unfortunately, in the time that’s passed a lot of factors could have affected their ability to repay the debt. Investments may have failed to perform sufficiently well to cover the outstanding amount, while savings are often swallowed up by other emergency expenses.
People could find themselves getting into financial difficulty or even losing their home – and retirees may be at risk of being one group to bear the brunt of these concerns.
The good news is that there are options available to help you get a repayment strategy in place - so if this all sounds far too familiar, there's help out there. Possibilities include:
Moving into a smaller home, or a home in a different area, may leave you with enough money to pay what is still owed. With this option, though, you need to be certain that you’ll have enough money left over from the sale of your house to make up the shortfall.
If you don't want to consider leaving your family home, that's understandable, however it’s important to consider every possibility while looking for your optimal solution.
This allows you to release some of the cash from your home without having to move. The money can then be used to repay your interest only mortgage - and you may even have money left over, should you require it, to spend on anything from home improvements to a luxury holiday. The plan is typically repaid when it comes to an end and the house is sold, usually after you have passed away or moved into permanent care.
A lifetime mortgage, the most popular type of equity release, is secured against your home. Equity release will reduce the value of your estate, and may affect your entitlement to means-tested benefits. It’s important to think carefully and consider the pros and cons of a variety of different options.
However, if staying in your family home is important to you then equity release is an alternative to downsizing.
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We do recommend that you always seek advice from a specialist adviser who will help you consider all of the options. If you’re considering equity release then we also suggest that you read is it right for you? carefully.
Unless you decide to go ahead, Key's service is completely free of charge as Key's usual advice fee of 1.99% of the amount released would only be payable on completion of a plan, subject to a minimum advice fee of £1,499.