How To Pay Off An Interest-Only Mortgage Before You Retire
560,000 Home owners Have An Interest-only Mortgage With No Plan To Pay Off The Debt
During the last decade more and more homeowners decide to opt for an Interest-only Mortgage as a means of affordably financing their homes as house prices increased. Lenders have in the past allowed interest-only mortgages even though most mortgage borrowers did not have a suitable repayment vehicle to repay their mortgage after they retired.
Freshly released market research conducted by BDRC Continental has found that 33% of interest-only mortgage homeowners did not have a repayment vehicle or a plan as to how they would pay off their mortgages before their retirement. These findings suggest that there are around 1.8 million Uk homeowners currently have an interest-only mortgage of which one in three interest-only mortgage owners are sat on a ‘ticking time bomb’ without a proper solution.
The Implications Of An Interest-only Mortgage
Being without a suitable repayment vehicle to pay-off your outstanding mortgage balance at the end of the mortgage term leaves many borrowers still paying a monthly mortgage payment into retirement. In most situations mortgage companies will not demand that the mortgage is repaid on retirement, unless the homeowners should fall into arrears. Generally borrowers will probably end up relying on their state pension to try and fund their monthly mortgage payment and pay their daily living costs. Around 12% of borrowers said that they would down size their homes and hopefully if there is enough money left after the sale of their home buy a smaller house. Other homeowners will probably fall into mortgage arrears as they struggle to repay their interest-only mortgage in retirement and then end up having their homes repossessed.
Is There An Answer To The Interest-only Mortgage Time Bomb?
There is always an interest-only mortgage solution to most problems including “how to repay your interest-only mortgage before you retire”. Not every interest-only mortgage solution is right for every borrower as ever mortgage is unique to the borrowers’ personal circumstances.
It’s never too late to look at any of the following possible interest-only mortgage solutions:
If you’ve still got Ten or fifteen years left on your mortgage before retirement then you should consider changing your mortgage from a 100% interest-only mortgage to a full repayment mortgage. If the cost of a full repayment mortgage is not possible due to the cost then think about a part repayment mortgage and part interest-only mortgage. This means that you would at least have a smaller mortgage repayment in retirement.
Consider selling your home when you feel that you can no longer afford the repayments and down size. If on the other hand you do not have enough equity left from the sale of your home to buy a smaller house, then consider investing your cash in the bank. Remember you could be retired for another 40 years which in some cases is longer than most people have worked in their lives.
Some home-owners are lucky and have parents that will leave them enough money to settle their interest-only mortgage. Anyone looking to inherit enough money from their parents should know that if their relatives are in a nursing home then their homes could be being used to fund their elderly care facility and they would possibly not receive as much inheritance as they thought.
You could always ‘rent out your garage’ for as a way of earning some extra money in retirement to help pay your bills.
Rent a room in your home and earn up to £4,250 tax-free income a year. That’s an extra £354.17 per month which would certainly help with your mortgage repayments. This isn’t everybody’s first choice of a solution but it could be used to help with paying a repayment mortgage or with helping to pay your interest-only mortgage during retirement. Not perfect in anyway but certain a life line!
Like I said earlier we could all be retired for many years and it might just be worth while finding a better paid job, or consider starting a part-time business or look for a part-time job to help pay the extra money to put your mortgage back on a full repayment plan.
It’s not to late to remedy your interest-only mortgage situation. I hope I have provided you with some ‘food for thought’ as to how you can put your current interest-only mortgage onto a full repayment mortgage that would finish when you retired and leave you mortgage free to enjoy your retirement.