Watch out for the interest-only mortgage trap

Nexus Wealth Planning > News > Watch out for the interest-only mortgage trap

Interest-only mortgages differ from standard repayment mortgages because the borrower repays only the interest every month; the capital is repaid at the end of the mortgage term. Interest-only mortgage deals enjoyed considerable popularity during the housing boom as they enabled buyers to borrow a relatively large amount for a comparatively modest monthly repayment.
Over the last few years, however, interest-only mortgage deals have become much less common and new regulation has curbed their availability, restricting them only to borrowers who can demonstrate a viable repayment strategy.

According to research conducted by Citizens Advice in 2015, more than three million UK homeowners had interest-only mortgages that will have to be repaid at some point during the next 30 years.

Approximately half of these interest-only mortgage holders had no linked repayment vehicle โ€“ such as an Individual Savings Account (ISA) or an endowment plan โ€“ in place, and 934,000 of these had no repayment plan at all. Moreover, over 10% of interest-only borrowers had not considered how they would repay the capital at the end of the mortgage term, thereby running the risk of repossession.

If you do have an interest-only mortgage, you should first verify what you will have to repay and when it will become due. Second, you should make sure you have a credible repayment plan in place. Finally, you should check regularly in order to ensure your repayment plan remains on target โ€“ and, above all, you should take expert advice.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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