What options are available if I have a shortfall?
There are various options available if you think you may have a shortfall. The sooner you act the more time you will have to get back on track.
These are some of the options available:
1. Making overpayments
Making overpayments can reduce your overall mortgage debt, as each overpayment reduces your mortgage balance and the interest you are charged. Even small overpayments can make a big difference to the total amount you owe and the amount of interest that you will pay. As well as making regular overpayments, there is also the option to make additional payments whenever you are able to.
The table below illustrates how making overpayments can reduce the amount you owe over time.
This is based on an average loan amount of £120,000, average interest rate of 3.99%, and an average term of 25 years.
The comparison calculation are based on regular overpayment commencing at both 7 years and 10 years from end of term.
Remember, you may need to pay an Early Repayment Charge (ERC) so it is important to check whether these apply to your mortgage product. This detail can be found on your original mortgage offer, your mortgage statement or online banking.
This is for illustrative purposes only and may not reflect your own personal circumstances. If you wish to make a lump sum overpayment this can further reduce your capital remaining and potential interest saved.
2. Transfer all or part of your mortgage to repayment
By switching to repayment you will reduce your mortgage balance month by month. As long as you stay on track with your monthly payments your mortgage will be completely paid-off at the end of the term.
If switching to repayment is unaffordable after reviewing your income and expenditure we will consider a part and part mortgage, where part of your mortgage remains on interest-only and an affordable part is transferred to repayment. Whilst this will mean you will not pay off your entire loan over the term of the mortgage, you will reduce the balance you owe. This type of mortgage is particularly helpful if you are facing a shortfall in your repayment plan.
3. Using savings or investments
If you plan to pay off your mortgage using savings or investments it is important that you review them at least once a year to make sure they are on track. If you are worried that your investments are not performing as well as they should and you want to understand your mortgage options, call one of our Interest Only mortgage specialists.
You could use your savings or investments to make a lump sum overpayment, but remember you may need to pay an Early Repayment Charge (ERC) so it is important to check if these apply to your mortgage product.
Remember, we don’t give advice on what is best for your savings and investments. The value of an investment could rise or fall; therefore you may want to consult an independent financial advisor. A list of independent financial advisors can be found at www.unbiased.co.uk.
4. Selling your home
If you plan to pay off your mortgage by selling your property, you will need to make sure that the proceeds from the sale will repay everything that you owe.
It could take longer to sell your property than you anticipate, and property prices may not be as you originally expected, so you will need to keep a close eye on the housing market in your area.
If you have reached the end of your mortgage term and your property is taking longer than anticipated to sell, talk to one of our Interest Only mortgage specialists.