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In this day and age, owning your own property is a luxury that many people will never experience…
With rising interest rates and the cost of living and property rising each, many millennials are turning to renting as their only option, when they fly from the safe and secure nest of their home with their parents. Having said that, many people do have mortgages, which come in different forms. If you currently have an interest-only mortgage, you may want to consider the fact that you are leaving yourself exposed to a “mortgage time bomb”, a financially insecure situation.
Read on to find out more about interest-only mortgages and their risks?
What is an interest-only mortgage?
When you take out an interest-only mortgage, you will only be required to pay back the interest on monthly payments. The term is usually between 5 and 7 years. After the term is over, you have a number of different options available to you. You can either refinance your home, make a lump sum payment or begin paying off the principal of the loan. Nearly one in five homeowners currently have this of mortgage.
Why might they be harmful?
The Financial Conduct Authority (FCA) has estimated that the end of these mortgage terms will peak in the next 10 to 14 years, but it has been revealed that many lenders have been ignoring letters from lenders, sparking concern that some homeowners do not have any plans in place to pay the final bill.
At present, there are 1.67 million full interest-only and part-capital repayment mortgages that are still outstanding, representing 17.6% of all mortgages in the UK.
Why are people ignoring their payments?
There are a number of reasons why homeowners might be choosing to ignore letters about their mortgage repayments. While some do have adequate payment plans in place, others are choosing to bury their heads in the sand over fears that they will never be able to completely pay back what they owe.
There is also the issue of people not trusting their lenders and therefore feeling suspicious about any correspondences they receive from them.
How can WE help?
We understand that, as a homeowner, your needs and requirements are specific to you, which is why we can offer a completely bespoke service. Whether you need advice about a payment plan for your mortgage or need to talk about how to deal with lenders, we’re happy to help. Find out more about our services here.