An interest-only mortgage helps to keep monthly costs down, but can cause problems when the term ends. Start planning now to have all financial bases covered.
The idea of paying just the interest element of a mortgage has appealed to home buyers at different times over recent decades. When the family budget is tight, and other outgoings are high, keeping monthly payments lower can be very attractive.
When interest rates have rocketed, such as periods in the late 1970s, mid-80s and early 90s, repayment mortgages were too costly for many. Paying just the interest was the only way to get on the property ladder.
How do you pay off the debt?
Most home buyers cover interest-only mortgages by taking out repayment vehicles. This is the way you intend to repay the original debt when the mortgage period ends.
Endowment policies were popular for many years. These are regular monthly payments to a life assurance company that pays out a lump sum at the end of the plan. This is usually in line with the mortgage term.
Other ways to cover the original borrowing include taking out investment bonds, saving into an ISA product, or even investing in stocks and shares.
However, not all people make provision to pay off the original debt at the end of the mortgage. When the term ends they are faced with a large bill from the lender.
The worst-case scenario could see many people having their homes repossessed. That will impact on families, communities and the country as a whole.
This suits nobody. Repossession is the last resort. Most mortgage lenders work with borrowers to find solutions. If alternative plans cannot be arranged, people can be forced to sell their home so they can repay the amount owed.
Avoid interest-only pitfalls
The common sense solution is to put a repayment plan in place – ideally when you start the new interest-only mortgage.
You can also do this mid-way through the term. However, as the years run down, you will need to play catch-up. This could mean having to make much higher payments into savings plans or investments to cover the overall debt on time.
Most lenders are happy to talk with customers. They want their customers to be able to make full repayments. They will discuss options – if you ask in time.
Knowing that the mortgage debt is covered isn’t just about money. We always talk about peace of mind, and having the key financial aspects of your life in order can help with overall well-being.
Independent advice about interest-only mortgages
There are many ways to ensure that mortgages are repaid – either as part of monthly payments, or with an investment designed to cover the overall amount.
Logic Wealth Planning has mortgage experts who work alongside our investment teams. We offer independent financial advice that covers all aspects of your life and wealth planning.
Your home is one of your assets, part of your estate, and an important element of your overall wealth.
Whether you need to start from scratch, mix repayment and interest-only options, or choose the best investment to repay everything at the end, we’re here to give you impartial advice.
Don’t leave it too late. Come and sit down and chat. We’ll listen, present some options and plan a way forward that is right for you and your family.
If you need advice about interest-only mortgages, give us a call on 0808 1234 321 (freephone) or email firstname.lastname@example.org.
We will arrange a convenient time to discuss your options.
Our goal is to help you find peace of mind.