how to pay interest only mortgage

How Do You Plan to Repay Your Interest Only Mortgage?

According to data from the Council of Mortgage Lenders, 1.9 million people in the UK currently hold an interest-only mortgage. An interest-only mortgage is one where the borrower only pays off the accrued interest in monthly instalments – rather than paying off the principal of the debt.

The appeal of interest-only mortgages lies in their low monthly payments. Borrowers aren’t required to chip away at the principal of the loan. In fact, they only need to pay the principal in full when the mortgage term ends.

Many of our existing clients have interest-only mortgages, so if you have one and haven’t yet given any consideration to how exactly you will pay off the loan, it’s is probably time to put a plan in place. At IMC, our experts are well-versed in this area. Together we can work to secure your position.

What could work?

1. Try to overpay your mortgage
This can be done through a surplus in your monthly income and expenditure allowing you to pay extra each month or via a lump sum payment, perhaps after receipt of an annual bonus. Most mortgage deals have the flexibility to allow a certain amount of overpayment without any penalty.

2. Switch to a repayment mortgage
If your monthly budget allows simply ask the lender to switch your mortgage from interest only to repayment over the remaining mortgage term

3. Downsize
If you have no way of raising the funds to pay off the loan, you can sell your house and use the proceeds to clear your mortgage. The idea is that you will have enough surplus to also buy a new home mortgage free.

4. Tax fee pension lump sum
Use the tax fee lump sum payment from any pension arrangement. You can have access to a lump sum tax free from age 55 and this could be used to decrease your mortgage balance.

5. Sale of another property
Use the proceeds from the sale of an additional property you may own to repay the mortgage on your main residence

6. Sell your business
Your plan may be to sell your business and use the proceeds to repay your mortgage.

7. Inheritance
You may expect an inheritance and plan to use this to repay your mortgage balance.

8. Switch your mortgage to an equity release mortgage
This would typically be around the age of 65.

If you’re looking for the mortgage best suited to your requirements and would like some advice from the experts at IMC then speak to a member of our team today.

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