Almost 1 million people face losing their home when their interest only mortgage term finishes, according to new figures from Citizens Advice.
An interest only mortgage allows a home buyer to pay only the interest accrude each month but doesn't include the capital. If someone doesn't repay the capital by the time the mortgage term ends they will still be liable to repay the full amount owed.
While an interest only mortgage can be cheaper than a capital repayment agreement, it can also be dangerous if the loan isn't repaid at the end of the term.
It's expected by 2017 a large number of home owners will be unable to repay their mortgage, as endowment mortgages from 1990's end their term. In 2027 the interest only mortgages which were taken out in the early 2000's will reach their term, leaving many people with a large mortgage debt.
Citizens Advice are calling for mortgage lenders to do more to help borrowers who are at risk of being left with a large mortgage debt. The charity want lenders to call customers, send letters and set arrangements to have the capital repaid before the term ends.
An FCA spokesman said:
"We expect firms dealing with interest-only borrowers to discuss repayment strategies and propose solutions where there are no plans in place."
Dealing with Mortgage Debt
There are a number of options available to people who are facing mortgage debt problems and the quicker they act, the easier it will be to deal with.
- Re-Mortgage: If someone is unable to repay the mortgage capital prior to the term ending they may have to re-mortgage. Taking a new mortgage will extend the current term and may the month repayments more manageable.
- Set Arrangement: If a re-mortgage isn't possible, however a borrower still has enough time to repay the capital, they could set an arrangement to begin to have it repaid before the mortgage term ends.
- Sell Property: So long as there is equity in the property a borrower may wish to sell the property and repay the mortgage. The problem the majority of people have found since the recession has been the drop in property prices since they signed their mortgage.
- Debt Solution: If all the above options aren't possible someone may have to consider entering a debt solution. The property would need to be repossessed or sold before any outstanding mortgage arrears or debts could be included.
Get Mortgage Debt Advice
If you are worried about repaying your mortgage by the end of it's term, contact Debt Support Trust on 0800 085 0885.
We will assess your full level of debt and while we can't include a secured debt into a debt solution, we can advise on the best method to deal with it.