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The following article was published in our article directory on February 13, 2013.
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How Can You Pay Your Interest-only Mortgage After You Retire?

Article Category: Advice

Author Name: Mark Aucamp

560,000 Home owners Have An Interest-only Mortgage Without A Plan To Pay Off The Debt

Within the last decade an increasing number of homeowners decide to opt for an Interest-only Mortgage as a means of affordably financing their houses as house prices increased. Lenders have previously allowed interest-only mortgages even though most mortgage borrowers did not have a satisfactory repayment vehicle to settle their mortgage once they retired.

Freshly released market research conducted by BDRC Continental found that 33% of interest-only mortgage homeowners didn't 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 homeowners still paying a monthly mortgage payment into retirement. In most instances mortgage companies will not demand that the mortgage is repaid on retirement, unless the homeowners should fall into arrears. In most situations 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 A 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 10 or 15 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 look at part repayment mortgage and part interest-only mortgage. This will mean 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 monthly repayments and down size. If however you do not have enough equity left from the sale of your home to buy a smaller house, then consider investing your money in the bank. Consider 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 pay off their interest-only mortgage. Anyone seeking 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 nursing home and they would possibly not receive as much inheritance as they thought.

You could always 'rent 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 is not 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 really hope I have given you 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.

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