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One million face interest-only mortgage struggle

Research from Citizens Advice (CA) shows 934,000 people with interest-only mortgages have NO plan in place to pay it off. This means a huge number of people could face repossession if they’re unable to find the money when the mortgage ends.

Of the 3.3 million interest-only mortgage holders, CA estimates half don’t have a linked repayment vehicle such as an ISA or endowment. Of this group 934,000 have no plan at all for repayment, and half of these haven’t even thought about how they will repay the capital.

These figures are something we’ve seen mirrored in calls to our own advice line. Some people are worried about not having the cash, while others are struggling to remortgage.

So what can you do if you are worried about how you’ll pay back your interest-only mortgage?

See if you can pay any capital

There could be a fee for this, but some interest-only mortgages will let you overpay towards the capital before the end of the term. This would mean you have less to pay off at the end, as well as reducing the interest you pay each month.

Try to come up with a suitable repayment plan

It might not be too late to get a plan in place. Different lenders accept different ways to repay. You might be able to use money from a pension pot (if you’re over 55), investments, proceeds from selling a second home, and of course any savings you have.

You might find cutting back will help you find more money to put into the plan.

Talk to your mortgage lender

The sooner you talk to your lender about the money you owe, the better. It might let you extend the mortgage term while you build up savings or investments to cover the capital, or help you switch to a repayment mortgage.

See if switching to a repayment mortgage will help

Your repayments will be higher each month, but moving to a repayment mortgage will mean you start to pay off some of the capital each month. You might also be able to move to a part-interest-only, part-repayment mortgages as an in-between step.

If you move to one with your existing lender and don’t want to borrow more money, you can avoid the rigorous affordability checks that were introduced a few years ago.

That doesn’t mean you can’t look for a better deal elsewhere, but you will have to prove you can make the repayments according to the new rules.

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