What To Do If Your Interest-Only Mortgage Term is Ending?
The big difference between a repayment and interest-only mortgage is that, when you reach the end of the term, the original loan amount's full value is due for repayment.
Before taking out interest-only lending, it is essential to consider how you will repay this - and having a repayment strategy is a critical requirement in most cases.
However, there is a range of options available, and it's worth considering which is best for your circumstances!
Here the Revolution Brokers team runs through the scenarios when an interest-only mortgage reaches an end - for more information and advice on your circumstances, give us a call on 0330 304 3040, or drop us an email at [email protected].
Can I Remortgage at the End of an Interest-Only Term?
You can, and if you can't repay the original loan or want to extend your lending, you have three options:
- Apply for an extension with your existing lender.
- Remortgage with a new provider.
- Use the property's equity towards a remortgage to reduce your LTV ratio on a new funding application.
Requesting a Term Extension on an Interest-Only Mortgage
There are many reasons you might wish to extend your mortgage, and the first option is often to apply to your existing mortgage provider for a longer term. This will give you more time to repay.
Lenders will want to know how you plan to repay the capital balance.
In some cases, this isn't possible for several potential reasons:
- Your mortgage term ends when you are over 75 or over 85, and your lender places a cap on maximum applicant ages.
- You cannot meet the affordability criteria to demonstrate your ability to repay the debt at the end of the remortgage term.
The best option is often to seek a remortgage with a different lender, whose criteria you can meet. In this situation, contact mortgage brokers, and we will recommend the lenders who will consider your application.
Remortgaging an Interest-Only Loan with a New Provider
Remortgaging with a new provider is always another option, and indeed, there might be far better rates on the market than those offered by your existing lender.
However, a new lender will need to go through the usual affordability and eligibility assessments you'd expect when taking out a new mortgage.
There are some common situations where high street lenders are usually not in a position to lend:
- You have a variable income, such as being self-employed or earning bonuses and commissions that mainstream lenders often cannot include in their affordability assessment.
- You have an adverse credit history. Many high-street lenders will automatically reject any application with a history of severe credit issues. In this case, a specialist bad credit lender is a far better prospect.
- You are over the maximum age cap imposed by the provider.
- You cannot demonstrate how you will repay the capital balance at the end of the interest-only remortgage term.
Should any of these scenarios apply to you, give the Revolution Brokers team a call, and we will recommend the most suitable lenders.
An essential requirement is to have a way to repay the loan balance, and there are lots of ways to do so:
- Investment income or sale of investment assets.
- Pension income, such as a lump sum withdrawal.
- Selling another property.
What Exit Strategies Can I Use to Repay an Interest-Only Mortgage?
Some of the most common interest-only mortgage repayment vehicles are:
- Cashing in or selling investments.
- Releasing cash from pension or savings funds.
- Remortgaging through a retirement mortgage.
- Remortgaging through a repayment mortgage.
- Selling a different property to raise the capital.
- Selling your existing property, and using the proceeds to repay the balance, with the equity released used to downsize to a smaller home.
Let's run through how those repayment strategies work in practice:
Downsizing - you sell the property. This option's viability depends on the equity owned and how much the home is valued on the current market. If you have enough equity, the difference between the mortgage balance and the sale value will enable you to downsize into a less expensive property.
Property Sale - for investors, landlords, or homeowners with more than one property, the sale of another portfolio property is a reliable way to repay an interest-only mortgage.
Pension or Savings Income - another option is to release cash from a pension scheme or ISA or sell investment assets. A lender will usually ask for an independent valuation to ensure this repayment strategy will be worth the requisite value at the end of the term.
Can I Remortgage an Interest-Only Mortgage into a Retirement Home Loan?
Sometimes, interest-only mortgages are remortgaged into products designed for later life borrowers. The most popular examples are lifetime mortgages and retirement mortgages.
Lifetime mortgages are available to applicants aged over 55. The borrower does not relinquish ownership of their home or make any payments for the remainder of their lifetime.
However, when the owner passes away or goes into care at the end of the term, the property is sold, and the lending repaid.
This type of lending has the advantage of releasing a capital sum from your equity. It is essential to remember that your property will be sold rather than being passed on as an inheritance.
Switching from Interest-Only to Repayment Mortgages
Interest-only mortgages can also be remortgaged to a repayment account, which means although your monthly repayments will increase, you will begin to pay back the original loan value.
You might apply for a repayment remortgage through your existing lender. Still, it is always advisable to contact an experienced broker for advice about more competitive deals.
How to Release Equity when Remortgaging an Interest-Only Loan?
Where you have equity in your property, you can leverage this to repay some, or all, of the mortgage balance.
The equity value is the difference between the value of the property and the amount outstanding.
What Can I Do if my Interest-Only Mortgage Term Ends in Negative Equity?
The property market fluctuates; negative equity is an unfortunate issue where you owe more than your property is worth.
If you are in this situation, give Revolution Brokers a call on 0330 304 3040 for specialist advice about the best options.
Is There a Maximum Age to Take Out an Interest-Only Mortgage or Remortgage?
Your age is usually only a consideration if you are already retired or nearing retirement age. Some mainstream lenders have an upper age cap of 75 or 85, but others do not have any maximum.
If you are a later life borrower and seeking interest-only mortgage refinancing options, get in touch, and we will recommend the optimal lenders to apply to.
Does the Type of Home I Have Impact My Interest-Only Remortgage?
It can do, yes, because any property that isn't 'standard' - i.e., isn't bricks and mortar - is difficult for a high street lender to secure a loan against.
That might include a thatched property or a timber frame building, for example. Some mainstream lenders might be able to approve your application but offer steeper rates or require a higher deposit to offset their increased risk level.
To remortgage an unusual property, contact Revolution for advice about niche lenders in this sector.
Which UK Lenders Offer Interest-Only Mortgage Products?
There are thousands of interest-only mortgage lenders, so it is strongly advisable to work with an experienced, independent broker to compare the options available.
As a whole-of-market broker with years of experience in the interest-only borrowing market, Revolution Brokers' consultants can recommend any product from any lender that we think offers you the most advantageous deal.
Expert Advice with Interest-Only UK Mortgages
If you are worried about the end of your interest-only mortgage or aren't sure of the most cost-effective option, contact the team on 0330 304 3040.
Whether you are keen to remortgage, find a new provider, or identify the ideal solution to resolve a refinancing issue, Revolution Brokers can help.
