Interest-only mortgages: act now and talk to your lender

[Pages:5]Interest-only mortgages: act now and talk to your lender

If you have an interest-only mortgage, you need to make plans to repay the capital (the amount you borrowed). If you don't, you will have a large amount to pay at the end of your mortgage term and may need to sell your home to repay it. You might be either unable or unsure of how to change your plans at the moment. Either way, speaking to your lender, mortgage adviser or an independent consumer organisation will help you understand the options you may have to help you improve your plans.

Act now

Speak to your lender or mortgage adviser, they may have options which you can discuss together and may give you peace of mind.

Don't delay ? remember it is your responsibility to repay the loan at the end of the term.

The earlier you speak to your lender or mortgage adviser, the more time you have to make a difference. You may even save on interest charges.

If you'd rather talk to someone else first, you can get help or advice from the Money Advice Service (MAS), Citizens Advice (CAB), StepChange or other organisations for free.

Financial Conduct Authority

1

Here's what you can do to keep your plans on track:

Step 1

Step 2

Check your current arrangements

Review your mortgage offer and your latest mortgage statement to check how much you owe and when you're due to repay.

Check whether you're likely to be able to repay the mortgage in full ? eg are your plans on track to give you all the funds you'll need to repay?

If you plan to sell your property and buy a smaller home, regularly check its value to ensure there is enough money in your home to achieve this.

Consider your options

When you've checked your current position, it's time to look at all your options to help you repay your mortgage. Try not to put it off ? leaving it later in your mortgage term might limit the options your lender or mortgage adviser can offer you.

Even if you think you can't afford to do much now, speaking with your lender can still help you understand possible options or changes you may need to make in the future.

Available options if you can afford to increase your monthly payment

Option 1 Changing to a repayment mortgage and paying over the same length of time (the mortgage term) Find out more about option 1 on page 4

Option 2 Making the term longer ? so you have more time to repay it

Find out more about option 2 on page 4

Option 3 Paying off some of the money you owe during the mortgage term and switching to a repayment mortgage to repay the capital by the end of the term

Find out more about option 3 on page 5

If you can't afford to increase your monthly payments

You may wonder if talking to your lender can do any good, especially if you can't make any change, even a small one, to your repayment plans. Do still talk to your lender or mortgage adviser ? there may be affordable options which could still work for you, such as an interest rate change.

No one can make you pay back your interest-only loan before the end of the mortgage term, unless you break the terms of your mortgage contract, for example, by not paying your regular monthly payments. Your lender or mortgage adviser will discuss your options but how you proceed is up to you.

2

Financial Conduct Authority

Things to consider

Acting earlier ? you'll probably have more options:

More likely to be able to switch to repayment

More likely to be able to switch to part capital repayment

More likely to be able to extend the term

More likely to be able to make additional payments on top of your monthly payment

Prepare for eventual sale of your home

Acting later ? you'll probably have less options:

You may have to cash-in investments

You may have to sell your home

Y ou may have to explore the possibility of a retirement or lifetime mortgage

Less likely to be able to extend the term

Less likely to be able to change how you repay

Step Contact your lender or mortgage adviser

3

When you are ready to speak to your lender or mortgage adviser, it should be straightforward to

talk through your circumstances together.

1. Check your current

plan and contact your lender or mortgage adviser

2. Review your

situation with them

3. Discuss possible

options ? there may be

more than you think

6. Take the action you

need to and regularly

check you're on track

5. Decide on your

preferred option

4. Think about your

affordable options ? maybe speak with MAS or CAB

Financial Conduct Authority

3

Option Changing to a repayment mortgage and paying over the same length of time 1 (the mortgage term)

You may be able to change to a repayment mortgage. This means your monthly payments go towards both the interest and the outstanding balance.

In this example, your mortgage balance is ?125,000 with a term of 25 years. You took out

an interest-only mortgage with no repayment plan. The interest rate is 3% and your monthly payments are ?313. If you had taken out a repayment mortgage from the start, your monthly payments would be ?593.

Keeping your mortgage as it is

Total cost: ?218,750

At the end of the 25 years you will have to repay ?125,000

Interest-only ? full 25 year term Monthly cost ?313

Cost

Switch to repayment with 15 years of your original term left

Total cost: ?192,881*

*No nal payment

Pay interest-only in the rst 10 years Monthly cost ?313

15 years repayment Monthly cost ?864 from year 10

Cost

Switch to repayment with 10 years of your original term left

Total cost: ?201,092*

*No nal payment

Pay interest-only in the rst 15 years Monthly cost ?313

10 years repayment Monthly cost ?1,208 per month

Cost

Cost

K0eepin5g you1r0 15 mortgage as iYteiasrs

20 25

S0witch5to rep10ayme1n5t with20 25 15 years of youYreoarrsiginal

S0witch5to rep10ayme1n5t with20 25 10 years of youYreoarrsiginal

After 20 years, your term is

tAefrtmerl2e0ftyears, your term is

tAefrtmerle2f5tyears, your term is

eTxotteanl cdoesdt:b?y2158y,7e5a0rs to allow

eTxotteanl cdoesdt:b?y19120,8y8e1a*rs to allow

eTxotteanl cdoesdt:b?y20110,0y9e2a*rs to allow

Oathpse2twitoiotA2nc5ttthayheletatroeMesnyrdroameoufpkwt3ahiillne0yhmagyveeetanhrtse?tmearkminglonger

a*Nsownailtpacymhentto repayment ? making

?tsheotyootaul thearmve35myoearrestime to

a*Nsownailtpacymhentto repayment ? making

repatyheittotal term 35 years 10 years repayment

Cost

Cost

to repay ?125,000

15 years

Monthly cost

IMnTtooenrtteahsllty-ccooonsslytt??:Ytrb3?feeuo1a2l3prl1ul2maa95nm,yy8tcei4noaaer2gytawebslrlmiooet1rf2cherwom01oaps-myaetb3arey?s0aylm1eesMoc,ea2wotrnhf0snot8itttmhhcclyehhoanotontuhgtrlseeytpypaaonayP1uydicnmTa0omriyotsnyhmiteetnegea?atner3lnosmrr1ctsetMr3o,ts.toostsg-ntorota:tnh?gygllyy2oae3gu0e,a3r8e1rM?e18op56na4yapprytrehmfsnlarlayopreyeimncnanpmot.ayystyTetememahrrneee1ent0stnsitnta-tmoreenro?elyrs3tmgPi1ctn1oTa5artys3oohyatgieten.?rtaaetIt3eerflrsg1rscfey3Mitarossoootgs-3nutmoet:%nhh?llwyyt2aah3idtne8ht,d5san9tyko2a?1fMoer10ororun,mtyn2er,rt0sopyhy8merlyeauopapcreytousoarmysa2rmnmt6to?e-eh1n3nnt,5lt2hyt08

Cost

Cost

0Pay

the

inrtsetr52e0sty-eoanI?rnlsy11itn20h5is,0e0x10a5mwipthle2a,0ytoeurmr2m5oof r2t5gayge0ePianartybshiean.tYlearors5entus2ct-0etoyoneilosay1rks0

out

frommyoeanrst2h1l-y35payments would be ?593.

1M5onthly c2o0st ?86425

0Pay inter5est-only10

15

in the rst 20 years

20 25

Monthly cost ?313Years

Monthly cost ?313 Years

Monthly cost ?313 Years

Cost

After 20 years, your term is e0xten5ded b1y0 5 y1e5ars t2o0allo2w5 30 a switch to repYeaayrsment ? making the total term 30 years

After 20 years, your term is e0xte5nded10by 1105ye2a0rs t2o5allo30w 35 a switch to reYpeaayrsment ? making the total term 35 years

After 25 years, your term is e0xte5nded10by 1105ye2a0rs t2o5allo30w 35 a switch to repYeaayrms ent ? making the total term 35 years

YTooutarlecpoasty: ?s2o1m9,e84o2f the capital

in year 15 and switch1t0oyras

repayment mortgagerepayment

for the last 10 years

from years 21-30 Monthly

cost ?1,208

PthaTeyointrtasetlr2ce0ostys-eota:nr?lsy1in97,123

Cost

Monthly cost ?313

Repay ?25,000 of the capital

0 5 10 15

Years

Pay interest-only

?100,000 remaining repayment mortgage for

th2e0next2150 year3s0

Monthly cost ?966

in the rst 15 years

YMoountrhelypcoasyt ?s3o13me of the capital 4 in year 15 and switch to a

r0epaym5 ent m10ortga1g5e 20 25

Cost

Cost

YTooutarlecposaty: ?s2o3m0,e38o1f the capital

in year 20 and switch to a

repayment mortgage for

the last 5 years

15 yrs repayment

from years 21-35

PinaTtyohientatelrrscetos2ts-0oty:ne?lay2rs07,813Monthly cost ?864

Monthly cost ?313 ?100,000 remaining

Repay ?25,000 repayment mortgage

of the capital

for the next 5 years

0 5 10 15 Mo2n0thly c2o5st ?13,7097 35

Years

Pay interest-only in the rst 20 years

YMoountrhelypcoasyt ?s3o13me of the capital in year 20 and switch to a r0epaym5 ent m10ortga1g5e for20 25

Cost

Cost

YTooutarlecpoasty: ?s2o3m8,e59o2f the capital

in year 20 and switch to a

10-year repayment mortgage which adds anoth1fer0ormyrsyereaprsay2m6-e3n5t 5 years to the termMonthly cost ?1,208

PinTatoyhtienatlercrseots2st-0to:yne?lay2r1s 5,873

Monthly cost ?313

Repay ?25,000

of the capital

?100,000, 5 year

0 5 10 15 2te0rm e2xt5ensi3on0and35

10 years repayment

YearsMonthly cost ?966

Pay interest-only in

the rst 20 years

YMoountrhelypcoasyt ?s3o13me of the capital in year F2i0naanncdiasl CwoitncdhucttoAauthority

010-ye5ar re1p0aym1e5nt m20ortg2a5ge 30

Cost

Cost Cost Cost

10 yrs

repayment

from years

10 yrs repayment

Option

Paying

of2cfo1ss-t3o?01Mm,2o0ne8thloy f

the

money

you

owe

d1u5 yrrsinregpaytmhenet

mortgage

term

andfrom years 26-35 Monthly cost ?1,208

3 switching

Pay interest-only in

to

a

repayment mortgage Pay interest-only

to

rfMeroompntayhelyyacrsots2ht1?-e8365c4 apitalPabyyintetrheset-oenlynd

of

the

term

the rst 20 years

in the rst 20 years

in the rst 20 years

Monthly cost ?Y3o13u may have enough to repayMponathrlty coofstt?h3e13

an interest-only mMoonrtthglyacogset ?w31i3th no repayment

outstanding balance, but not enough to repay plan. The interest rate is 3% and your monthly

0

5

1it0all. 15 20 25 30

0 5 10 15

In thYeisares xample, your mortgage balance is Years

?125,000 with a term of 25 years. You took out

20

prea2py5amyme3n0etnst3a5mreo?r3tg01a3g. eI5f fyrooum10htahde1t5satkae2rnt0,oyuo2t5uar monthly payments would be ?Y5e9ar3s.

30

35

You repay some of the capital in year 15 and switch to a repayment mortgage for the last 10 years

You repay some of the capital in year 20 and switch to a repayment mortgage for the last 5 years

You repay some of the capital in year 20 and switch to a 10-year repayment mortgage which adds another 5 years to the term

Total cost: ?197,123

Repay ?25,000 of the capital

Pay interest-only in the rst 15 years Monthly cost ?313

?100,000 remaining repayment mortgage for the next 10 years Monthly cost ?966

Total cost: ?207,813

Repay ?25,000 of the capital

?100,000 remaining repayment mortgage for the next 5 years Monthly cost ?1,797

Pay interest-only in the rst 20 years Monthly cost ?313

Total cost: ?215,873

Repay ?25,000 of the capital

Pay interest-only in the rst 20 years Monthly cost ?313

?100,000, 5 year term extension and 10 years repayment Monthly cost ?966

Cost Cost Cost

0 5 10 15 20 25 Years

0 5 10 15 20 25 0 5 10 15 20 25 30

Years

Years

Other options may be available to you from your lender or mortgage adviser.

The examples shown are for illustrative purposes only where the illustrated rise is not a true reflection of the change in payment and may not reflect actual amounts paid by customers. Costs have been rounded up in all instances. There are other ways to pay off the mortgage balance. Data used ? FCA PSD007 (Mortgage Performance Data) for H1 2017 and states the median interest-only and part capital repayment mortgage balance.

Further help and advice

You can contact the following organisations for free, confidential and impartial advice, and on where to get this advice in your area.

Money Advice Service ? For free, unbiased and easyto-access money tools, information and advice, visit .uk or phone 0800 138 7777 to speak to a Money Adviser

AdviceUK ? Member centres offer specialist advice for minority communities and people with disabilities ? .uk or phone 0300 777 0107

Money Advice Scotland ? If you live in scotland, phone 0141 572 0237 or visit .uk to find contact details for debt advice in your local area

Citizens Advice ? For advice and information on debt and other topics, visit .uk or phone 03454 04 05 06

Stepchange ? For free, and impartial mortgage advice visit mortgageadvice or phone 0800 027 4536 to speak to an advisor

Other useful organisations

Civil Legal Advice You may get legal aid if your home is at risk. Check at .uk/civil-legal-advice or phone 0345 345 4345

Financial Ombudsman Service If you have a complaint that you can't resolve with your lender or mortgage adviser, the Financial Ombudsman Service may be able to help ? phone 0300 123 9123 or 0800 023 4567 or visit financial-.uk

Financial Conduct Authority

5

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download