Interest Payment Options
We are being contacted by an increasing number of clients who are in retirement and who previously had an interest only mortgage with a mainstream lender that is now coming to the end of its term, where they do not have a repayment vehicle in place to pay off the outstanding mortgage.
This may be because a previous vehicle (such as an endowment policy) has been surrendered or cancelled in the past, or indeed the maturing endowment policy has a shortfall. In other cases the borrowers had planned to ‘downsize’, but having now reached this time, they do not wish to move to a lower value and probably smaller property.
According to the Financial Conduct Authority, some 600,000 interest-only loans will reach the end of their term by 2020 and it estimates that half of those borrowers have no means of paying those loans off, creating some 300,000 so-called mortgage prisoners.
The mainstream mortgage market may not offer any solutions to their situation – many high street Lenders will not permit mortgages to those in retirement and with the recent changes in the Mortgage Market Review in 2014, affordability must be proven as part of the application process. Where there is still a set end or repayment date for the loan – which could be over a short period of time, this would make many mainstream mortgages unaffordable for those in retirement. In fact we have found that some mainstream Lenders are putting increasing pressure on older borrowers who have come to the end of their Interest Only mortgage term, demanding immediate repayment of the loan, thereby causing increasing worry and stress.
Lifetime Mortgages that allow Interest Payments may be an attractive solution for some people. This provides the option of continuing to meet the interest payments whilst they are affordable, but without the fear of losing your home, being repossessed or having a fixed term to repay the mortgage by.
Interest payments can be an upper figure set by the Lender based on the amount of the loan, or any affordable figure (subject to a minimum monthly amount) according to the Lender’s scheme requirements. Any payment made to the Interest Only scheme below the upper figure set by the Lender will still have an impact on the accruing loan, the balance between the two will effectively be “rolled-up” against the loan.
Interest Payment schemes must also offer a switch to a ‘roll-up’ of interest if the borrower requests it. However, this is done automatically by the Lender if the borrower misses a number of monthly interest payments.
Interest Payment schemes will be subject to confirmation of affordability in line with the Mortgage Market Review.
To fully understand the features and risks, please ask for a personalised illustration.
With some Interest Only Plans, your home may be repossessed if you do not keep up repayments on your mortgage. |
