Can’t Pay Your Interest-only Mortgage?
If the end of your interest-only mortgage is approaching, your payments may spike. Find out what happens if you can’t pay and, what your options are.
An interest-only mortgage is a type of property loan that allows the borrower to only pay the interest on their loan for a set period of time, usually 10, 15 or 20 years. This is often sold as a more affordable way to buy a property as your monthly repayments are only a fraction of what they would be with a traditional mortgage.
These were common pre-2008 however, are still available. Due to their popularity during that time, there has been a wave of interest-only terms coming to an end in recent years. Loose rules and inflated property prices mean that most interest-only borrowers will never be able to pay back what they owe.
Should I Be Worried About My Interest-only Mortgage?
Although there may appear to be no issues during your mortgage’s interest-only period, the end of an interest-only term can be a major issue for two main reasons:
Negative Equity
If your mortgage is nearing the end of the interest-only term, you can sell your property to pay off the remaining amount. When interest-only mortgages were sold, house prices were rising continually, and no one could have foreseen the sudden drop in value.
This means when it comes to paying off your mortgage, the sale value will not cover the remainder. Being in negative equity means that you will still need to pay the shortfall yourself. This can make it difficult to decide whether to sell and pay the difference or continue paying the mortgage and face a large bill.
Huge repayments
When the interest-only term ends, you will have to pay off the remaining capital. Depending on your mortgage terms, this might mean you have to pay off the entire remaining sum. So, for example, if you borrowed £100,000 you will be required to pay this in a lump sum.
Alternatively, you might need to make monthly payments. These payments will be much larger than a normal mortgage and for most people are unsustainable.
What Happens if You Don’t Pay…
An interest-only mortgage is treated like any other mortgage or loan in this case. The first action will likely see the bank repossess your home. They will then sell the property and use the proceed to pay off your remaining mortgage. If there is a shortfall, you will still need to find a way to pay this.
Beyond repossession, your lender could take you to court to force you to pay. This could result in the repossession of other properties or assets or, even your personal bankruptcy.
What To Do If You Can’t Pay Your Interest-Only Mortgage
If you cannot pay your interest-only mortgage, it can be a daunting prospect but, there are options available.
You can assess a variety of options such as extending your mortgage term, taking out another mortgage with a different lender, or equity release. Although these may provide immediate financial relief, these are short-term solutions for a long-term problem. problem. You will still need to pay back the total amount at some point. If you are unlikely to be able to do this in the future, it is best to face your problems head-on now.
Depending on your personal financial circumstances, there are a variety of options that may be suitable to resolve your issues. However, these processes can be complicated and drawn out. This is why we always recommend consulting independent property debt experts before making any immediate decisions, with our free initial case review – you have nothing to lose.
Bell & Company negotiate directly with lenders to get the best possible deals for our clients across the UK and Ireland. This allows us to achieve settlements that would not be possible otherwise. If you are worried about an interest-only mortgage, contact us today. Our team are always available to carry out a full free case review and provide a tailored strategy for you.
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