Repaying an interest only mortgage
Peter and Janet:
- In their early 60s
- Both have full-time jobs
- Own semi-detached property valued at £275,000
- Have an outstanding mortgage of £42,000
Janet and Peter’s bank has written to them, reminding them that their mortgage term expires in 12 months’ time and asking how they intend to repay the outstanding £42,000. They’re worried that if they can’t raise the capital to clear their mortgage, their home could be repossessed.
They decided to go to their current mortgage provider and ask for their mortgage term to be extended, but they were told that was not possible. They then asked other high street banks if they could remortgage with them, but again were turned down. They began to worry about what to do, and decided that they needed to see a financial adviser to find out more. Their financial adviser told them that because of their age, mainstream mortgage providers would be unwilling to help them.
Their financial adviser discussed the possibility of downsizing with Peter and Janet, but they decided against this as they didn’t want to leave their local community and they loved their home. Understanding this, their financial adviser started to talk to them about an interest only lifetime mortgage.
He explained that it operated in a similar way to their current mortgage. They could release some money from their home, and each month a fixed amount would be collected from their bank account by direct debit to service the interest. This would allow them to clear their mortgage shortfall without needing to move home, while allowing them to eliminate any interest roll-up on the loan and keep the loan balance level.
Janet and Peter decided to go ahead with the interest paying lifetime mortgage, thinking it was a sensible solution. They were able to clear their outstanding mortgage without giving up the home they had loved for 25 years, and had peace of mind knowing that they could stop making interest payments if they needed to.
- Janet and Peter can stay in their home
- No threat of repossession, as long as they abide by the Terms & Conditions of the mortgage
- Eliminates the impact of interest roll-up
- They can continue to make monthly payments
- Monthly payments can be stopped if their circumstances change
These case studies are worked examples and are for illustrative purposes only. Your customers will need to seek their own tax advice and you or your customers should not place any reliance on the figures illustrated in this case study.
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