Can I use my home to repay my interest only mortgage?

Can I use my home to repay my interest only mortgage?

If you are one of the lucky people who has a substantial amount of equity in your property, you may find that you can use this as a repayment strategy if you were to take out an interest only mortgage.

There are pros and cons to having an interest only mortgage, but if it is something you wish to consider, we can look at using your home as the repayment vehicle.

By having an interest only mortgage, the monthly payments will be significantly lower as you are not repaying the capital. This means at the end of the mortgage term, you will have the same mortgage balance, as you would have had when you first had the mortgage.

This may be preferable to you as you could use the money elsewhere, be that in stocks and shares, ISAs or just for your day to day lifestyle.

The way you would repay the mortgage is when you come to the end of your mortgage term, you would sell the property and use the equity to purchase a new home outright.

Using the sale of a property as a repayment strategy.

Alan was referred to Lloyd Wells Mortgages by his Financial Adviser.

He was looking to purchase a new home and had a significant deposit to put down.

It had come to Alan’s attention that he may be eligible for an interest only mortgage.

This was preferable for him as he had a vast financial knowledge and he was confident that he could invest the money and pay the mortgage off sooner than if he applied for a capital and interest mortgage and just paid the mortgage each month.

Mortgage Appointment

Alan and I booked an appointment in at his current home and went through his options.

His deposit for the new property was 50% of the purchase price.

The lenders that are able to consider sale of the property as a repayment strategy have similar, yet different requirements.

Some will require £150,000 of equity in the property at the end of the mortgage term.

Others will need a minimum income of £100,000 per annum and equity of £300,000.

You might find that you can only have 50% of the property on an interest only basis, but another 25% on a typical repayment mortgage.

As a rule of thumb, you won’t be able to have an interest only mortgage past your 70^th Birthday.

We ran through several scenarios;

• An interest only mortgage
• A split mortgage where a portion was interest only and
• A mortgage on a completely repayment basis

Mortgage Recommendation

Due to Alan’s large deposit, it became apparent that a fully interest only mortgage was his preferred option.

Due to his age, it would have been a large monthly payment to have the mortgage over a short term on a repayment mortgage.

He was confident that when he came to retire, he could sell the property and downsize to a smaller property that he could own outright. If the property market continues to improve, he may be able to purchase quite a sizeable property outright at retirement.

We were able to secure Alan a very attractive 2 year fixed rate. He wanted to be able to budget but didn’t want to tie himself in for more than 2 years in case he wanted to retire early, sell up and move to the countryside.

Result

Despite everything that was going on in the wider world, Alan was over the moon with our solution and was able to exchange and complete during the Corona Virus pandemic.

If he’d have gone to his bank, he wouldn’t have been able to get an interest only mortgage and his monthly payment would be over 3 times more expensive on a repayment basis.

If you already own your home and you want to remortgage it on to an interest only basis, you would also have the ability to use the sale of the property as a repayment strategy. For some people, they may prefer to look at Retirement Interest Only (RIO) mortgages or Lifetime mortgages. We’ve teamed up with www.moneyrelease.co.uk who have their head office in Portishead. We’d be more than happy to introduce you.

Next Steps

If you are wondering if you would be eligible for an interest only mortgage, then do give us a call on 01174 520 330. Our initial conversations usually last around 15 minutes.

Alternatively, you can email enquiry@lloydwellsmortgages.co.uk and let us know how we can help you.

We will discuss:

• How much you can borrow
• What that will cost
• What fees can you expect
• How Lloyd Wells Mortgages work
• What insurances you will need
• What documentation you will need to provide
• Next steps

Your home may be repossessed if you do not keep up repayments on your mortgage.