Older people with interest-only mortgages can face unique problems with their mortgage repayments. With interest-only mortgages, borrowers just repay the interest on the mortgage. Monthly repayments are lower than on capital repayment mortgages. But, at the end of the mortgage term, you have to pay off the full loan. You’re expected to have a plan in place to clear the debt using savings, investments or other assets.
Many older people bought these mortgages along with endowment policies, which haven’t performed as well as expected since the 2008 financial crash. They are now finding it difficult to pay off the mortgage at the end of the deal because they don’t have enough money set aside.
If you have an interest-only mortgage, you’re responsible for putting in place a repayment plan. You should review it regularly and check with your lender to make sure your plan is sound. MoneyHelper has a mortgage calculator that can help you work out what you’ll have to pay.
If you’re in mortgage arrears
If you’re falling behind in your mortgage payments, contact your mortgage lender. They will normally write to you within 15 days if you miss a payment, but it’s better to reach out yourself. Their telephone number and address should be on your most recent mortgage statement, or any other letter they have sent. Citizens Advice have more information about how to write to your mortgage lender.
You may be able to change your mortgage terms or change the type of mortgage that you have. Although you not have every mortgage option available, some lenders are becoming more flexible and extending the upper age limit for borrowing. Repossession should be the last option that your lender considers.
Check your cover if you took out mortgage protection insurance. You might be able to claim if your income has fallen because of illness, for example.
Whatever your situation, don’t ignore the problem. It’s best to take action to deal with it as soon as possible.
Talk to your lender about different ways you can repay your arrears. One option is paying more in future payments, if you can afford to do so. See below for help with essential costs, to potentially increase your available income.
If your home is worth more than the mortgage you have, your lender might let you add your arrears to the total amount you owe. You will then pay it back over the lifetime of the mortgage. This is called ‘capitalising your arrears’.
You might also be able to pay off your arrears using your pension or an endowment policy, which is a type of life assurance. Always get financial advice before making a decision like this. You can call our Helpline on 0800 319 6789 for more information.
You could also consider:
renting out a room in your home. You may need to get permission from your lender and, if you are getting any benefits, you must tell the Department for Work and Pensions and HM Revenue and Customs about any extra income you get
renting out your home if you have somewhere else to live. You’d have responsibilities as a landlord and your mortgage interest may increase
selling your home. You’ll need permission from your lender if your house is worth less than the amount left to pay (known as negative equity). Be aware that if you sell your house and then approach your local council for help with housing, they may decide that you intentionally made yourself homeless and may not have to help you. You should check with your local council first. Or you can call our Helpline and arrange to speak to an adviser
equity release – but it’s essential to get legal and financial advice before you do, because it’s not suitable for everyone.
Don’t just hand back the keys to your lender – you’ll still be legally responsible for the debt and they may sell the property at a lower price.
Paying your mortgage going forward
If you’re struggling to pay your mortgage every month, you could ask your lender to change how your repay it. You may be able to:
pay the debt over a longer period
switch to interest-only payments
take a break from your payments for a few months. This is known as taking a ‘repayment holiday’.
Make sure you’re claiming all the benefits you’re entitled to. You can use our benefits calculator to work out what you could get or call our Helpline and arrange to speak to an adviser.
You may be able to claim help with housing costs. If you’re on certain benefits, you may be able to get a Support for Mortgage Interest (SMI) loan paid by the Department for Work and Pensions, which can help to pay the interest on your mortgage. Visit MoneyHelper for more information.