Interest Only Mortgage Options For The Over 60s
Back in the early 90s interest-only mortgages looked like a great deal. Monthly repayments were low, and a booming property market gave borrowers confidence that they’d always be able to repay their mortgage when they sold – and have cash left over.
In 1998 97% of first-time buyers were choosing interest-only mortgages.
But by the time of the financial crash of 2008 the shortcomings of the interest-only option were revealed. People selling their houses were finding they were worth less than when they bought them.
Not having paid off any of the equity of their mortgages, many borrowers were finding they actually owed their mortgage lender money for the privilege of no longer living in their home.
Lenders got nervous and tightened up their criteria for interest-only mortgages, with only a certain percentage of your mortgage being available interest-only.
The end-of-mortgage deadline
But there are still older home-owners who took out their 25-year interest-only mortgages in the early 90s who are finding that they’re coming to the end of their mortgages and are expected to repay hundreds of thousands of pounds they haven’t got.
Because of their age they weren’t eligible for re-mortgage, and their only option was to sell up and move out.
New options available
At the beginning of 2018 the Financial Conduct Authority (FCA) relaxed the rules on interest-only mortgages to help older borrowers who were facing losing their homes. There are now a number of options available for the over-60s designed to help you out of this end-of-term cash hole.
Or you might just be wanting to free up some cash from your home without resorting to an equity-release scheme.
How do they work?
- There is no defined end date on most of these mortgages – you just keep making monthly interest payments until you sell your house (and possibly move into a retirement home), or you die (and your estate sells your house).
- Your loan-to-value (LTV) on your house needs to below a certain threshold so the mortgage lender is assured they’ll get their money back when the house is sold.
- If you can pay off any of the capital, you will be encouraged to do so: up to 10% per year.
- For a couple, you need to consider carefully what will happen if either of you dies: will you still be able to keep up the payments?
What are the pros and cons?
- There’s no final repayment date, which takes the pressure off you
- You keep your monthly payments affordable because you’re still only paying interest, not capital as well
- The amount you owe will eventually diminish in value due to inflation
- You can change to a repayment mortgage if circumstances change and if becomes affordable
- The interest rate you’ll be paying will be higher than for a standard mortgage
- If you live to a ripe old age and stay in your house paying interest every month, this type of mortgage could end up costing more than a standard mortgage for a set term
- The capital still needs to be repaid when the house is sold
Will I be eligible for a new interest-free mortgage?
- If you have 60% LTV you will be able to find an interest only mortgage option
- With an LTV of around 75% you will be looking at a tailored option of repayment and interest.