If you have an interest only mortgage coming to the end of its term and no way to repay the capital, you are not in an unusual position and you are not out of options. You do need to act, though, and the earlier you start the more options you have.
How people end up here
Interest only mortgages were sold widely for years. You paid the interest each month, the balance never went down, and something was supposed to clear it at the end. An endowment. An investment. Downsizing. A pension lump sum.
Then the endowment underperformed, or the plan changed, or life happened. The term is ending, the lender wants the capital, and the money is not there.
If that is you, the important thing to know is that lenders would far rather find a solution than repossess, and there are more routes than most people realise.
Why this problem gets solved differently after 55
A normal remortgage is assessed on income. That is precisely the wall people hit in their sixties: the money is in the house, but the income no longer supports a standard loan.
A lifetime mortgage is not assessed on income. It is based on your age and your property value. That is the whole reason it works here. The equity that has built up in your home over thirty years becomes the thing that repays the old mortgage.
In practice, the equity release pays off the interest only balance on completion. The old mortgage goes. The monthly payment goes with it, unless you choose to keep making payments.
What that actually means month to month
This is the part people find hardest to believe, so it is worth being plain.
On a standard lifetime mortgage there is no monthly payment required. The interest is added to the balance instead, and the whole lot is settled when the property is eventually sold, normally when you die or move into long term care.
So if you are currently paying, say, £300 a month in interest and worrying about the capital, both of those can stop.
But, and this matters, that interest still exists. It compounds. Not paying it now means owing more later, which comes out of the estate. That is the trade, and it should be a decision rather than a surprise.
You can also choose to keep paying the interest, monthly or when it suits you, with no penalty. Plenty of people who can comfortably afford the payment carry on making it, precisely so the balance does not grow. The difference is that it becomes optional rather than something the lender can repossess over.
It is not the only route, and it may not be the right one
Equity release is one answer. It is not automatically the best one, and any adviser who goes straight there without looking at the rest is not doing the job properly.
A retirement interest only mortgage (RIO) may suit you better. You keep paying the interest monthly, exactly as now, but there is no end date to worry about. It is assessed on affordability rather than age, so it depends on your retirement income standing up to the lender's checks. If it does, it usually costs less over time, because the balance is not growing.
A standard mortgage for older borrowers is worth checking too. More lenders will lend past 70 than people assume.
Downsizing clears the debt outright and leaves money over, and for some people it is genuinely the right answer even though nobody wants to hear it.
Extending the existing term with your current lender is sometimes possible and is the simplest fix of all where it works.
The right answer depends on your income, your age, the size of the balance and what you want to leave behind. That is what an adviser is actually for.
Start before the deadline, not after it
The single most useful thing on this page: do not wait until the final months.
Options narrow as the term end approaches, and once a lender has moved to formal recovery the picture gets harder. If your term ends within the next two or three years, that is the right time to look at it, not the week the letter arrives.
Not sure how any of this applies to your own circumstances? Craig is happy to talk it through, free and with no obligation.
Where we fit
Craig has spent his career in later life lending, which is exactly the territory this problem sits in. He will look at the whole picture, including the routes that are not equity release, and he will tell you if one of those suits you better.
There is no charge for that conversation, and our advice fee of a maximum of £1,495 is only ever payable if your case completes.
Book a call with Craig or call 0113 403 5584.
