Interest Only – more changes, time to call the tailor

If you have an interest only mortgage you must be wondering what is next for you. If have one and are not then perhaps now is the time to start.

A repayment vehicle seemed like a quaint idea to some in the days before the credit crunch, but this has swiftly changed to such an extent that to some lenders the vehicle must now have enough funds in it, this means no further growth is being allowed for. I suspect most people dont have the cash just yet.

The changes mean that those with Interest Only right now need to think ahead. The Co-op has started to write to customers with 10 years or less on their remaining terms to say, do you need help? – This is a warning sign of problems they see up the road. Don’t wait, get something in place now.

But What? Well let’s look at the various options, first what do you have already, what will it give you and can you spare it to pay off the mortgage?

Secondly how about repayment, or even overpayment to starting eroding the balance and if it at the term of your mortgage there will still be a balance payable, what about down-sizing or relocating to a cheaper area?

Don’t like those ideas? Well we better get something sorted otherwise that could be your choice.

Other overpayment ideas are start now and increase your overpayment every year till the term by a few per cent, it might not clear the loan, but the more equity equals more choice.

Are you willing to work longer? Will your employer let you?

None of these questions are very pleasant, however Interest Only may have let you live in a house with a lifestyle that would have been out of reach on full repayment, there is no criticism intended, in fact what I want to provoke is thought early about the financial changes needed to maintain this.

The reason for this is lenders are now restricting the ability of folk in this situation to get new loans, even if your payments are up to date, your credit file  the very definition of gold standard, that is no longer enough. You have to fit in to a new world that does not like Interest Only lending.

Santander & Nationwide in the last few weeks and most recently the Coventry have now restricted Interest Only to 50% loan to value, so got a house worth £400k and a mortgage of £240k? Well, you can do the maths. From now on only repayment from these lenders and could you afford the jump on your remaining term? And other lenders will follow, perhaps yours?

You will have noticed in this article that most of it is about questions not answers, well that is because everyone needs their own answer tailoring and if you fancy getting measured up for a solution that suits then get in touch.

PS notice the webchat on the right hand side, open that up and I am happy to answer any questions you may have about interest only remortgages or any other mortgage subject.

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