Do you have an interest-only mortgage? It is close to reaching maturity? Do you have enough money set aside to pay it off?
If not, you’re not alone – it is thought that around 85,000 interest-only mortgages will reach maturity this year, with a similar number next year.
Many of the people behind those thousands of mortgages will not have the financial means to pay off the considerable debt typically left at the end of an interest-only loan – where monthly payments only account for the interest accrued, not the original capital.
Indeed, the Financial Conduct Authority believes a sizeable proportion of borrowers who took out an interest-only mortgage 25 years ago have not made the financial provision to pay off the capital, meaning many will be left with a large debt, and no means of settling it.
In some cases, the lender will allow the mortgage to be extended in order to pay it off, although this depends not only on the lender, but also the borrower’s age. Of course homeowners could always sell their house and downsize, using the money raised to pay off the mortgage.
However, there is a more effective, less unsettling, method of raising the money needed – equity release.
Equity release is a means by which older people who own their property can release part of the cash currently locked into their home, without having to move house. The scheme can be used by people over 55, and the cash raised can be used in whatever way the homeowner desires, including to pay off the mortgage.
A typical equity release scheme does not involve monthly payments. Instead, the amount owed is paid back when the property is sold. This is usually when the homeowner dies or goes into care.
However, with new equity release schemes in the market, if you wish to continue making payments there are now options. With voluntary payment plans, interest only lifetime mortgages and plans with shorter term early repayment charges, the future balance can be managed to suit the inheritance of the individual.
The amount of money borrowed through equity release varies, depending on the borrower’s age and health and the value of the property. Many people will find it is enough to pay off their maturing mortgage, remain in their property & enjoy a relaxing retirement.