Interest-only mortgages are a type of mortgage where the borrower only pays the interest on the loan, and not the capital. This means that at the end of the mortgage term, the borrower still owes the original amount borrowed. 

In the 1990s, there was a boom in interest-only mortgages, and many homeowners who took out these mortgages during that time will now be coming to the end of their mortgage term with the full or a large amount of the capital needing to be paid off. In fact, it is estimated that almost half a million interest-only mortgages are due to end before 2027*. 

This can be a stressful time for homeowners, who risk losing their home if they are unable to repay the mortgage when the term ends. 

For some interest-only borrowers, they may have a way of paying off the balance when they reach the end of their term. However, many more do not. This is where an Equity Release Lifetime Mortgage could come in as a potential option for those looking to pay off their interest-only mortgage. 

If you’re one of those homeowners looking to repay your interest-only mortgage before the term comes to an end, don’t worry! There are ways to pay off the balance when you reach the end of your term. 

Equity Release allows homeowners to access the equity built up in their home, which they can use for any legal reason, including to pay off their mortgage. It’s important to note that an Equity Release Lifetime Mortgage has long-term financial implications, and speaking to an financial adviser is crucial before committing to it. 

If you’re considering using equity release to pay off your interest-only mortgage, you may be wondering if you’re eligible. Each provider has its own criteria, but to be eligible for a Lifetime Mortgage, the minimum age is usually 55 years old. You should also know that if you have an existing mortgage or other debt secured against your property, this must be paid off either from the Equity Release itself or before you go ahead with the application. 

Another thing to keep in mind is that each provider has its own minimum acceptable property value, which can start at £70,000. If you’ve experienced credit problems in the past, usually, it won’t count against you with Equity Release, unlike with ordinary mortgages, because you aren’t required to make any regular repayments. However, if you have made special arrangements with creditors, such as an IVA, CCJ, or Debt Management Plan, Equity Release providers will have certain requirements. For example, there could be a limit as to how much the debt is, or they may insist it is paid off from the Equity Release money. 

If you have any questions or want to explore your options further, please don’t hesitate to get in touch! I’m here to help. 

Risk Warning: This is a lifetime mortgage. To understand the features and risks, ask for a personalised illustration. Check that this mortgage will meet your needs if you want to move or sell your home or you want your family to inherit it. If you are in any doubt, seek independent advice. 

* https://www.ukfinance.org.uk/data-and-research/data/interest-only-mortgages