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You can find the current article at its original source at https://www.theguardian.com/money/2018/nov/19/remortgage-loan-interest-only-mortgage-rate
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| Should I remortgage for the final 18 months of my loan? | Should I remortgage for the final 18 months of my loan? |
| (2 months later) | |
| Q My current fixed-rate mortgage deal ends about 18 months before my mortgage comes to an end in 2022. It’s an interest-only mortgage so the last £40,000 should be paid off by my endowment (it was meant to pay off £65,000 but underperformed so this is their latest prediction, and I am too late to make any claim about that). My bank has told me I can’t take out another deal and will have to go on its standard variable rate for the last 18 months of the mortgage. I am a bit concerned in case the rate goes up and I get stung. It seems very unfair. Not only have I had to pay off an extra £25,000 because of the poor investment vehicle but I now might have to pay more interest. | Q My current fixed-rate mortgage deal ends about 18 months before my mortgage comes to an end in 2022. It’s an interest-only mortgage so the last £40,000 should be paid off by my endowment (it was meant to pay off £65,000 but underperformed so this is their latest prediction, and I am too late to make any claim about that). My bank has told me I can’t take out another deal and will have to go on its standard variable rate for the last 18 months of the mortgage. I am a bit concerned in case the rate goes up and I get stung. It seems very unfair. Not only have I had to pay off an extra £25,000 because of the poor investment vehicle but I now might have to pay more interest. |
| Is there any course of action I can take to improve this situation? Should I remortgage again at some point so I can fix until the end of the term?AB | Is there any course of action I can take to improve this situation? Should I remortgage again at some point so I can fix until the end of the term?AB |
| A If you genuinely have an interest-only mortgage, none of the original mortgage loan will have been paid off by the time it comes to an end. It is not the case that you have had to pay off an extra £25,000 because of the underperforming endowment policy. Rather, the underperforming endowment policy means that when your mortgage comes to the end of its term, you will have to find £25,000 to be able to pay it off in full (assuming the endowment will provide a lump sum of £40,000 to put towards clearing the loan and assuming the original amount you borrowed was £65,000). | A If you genuinely have an interest-only mortgage, none of the original mortgage loan will have been paid off by the time it comes to an end. It is not the case that you have had to pay off an extra £25,000 because of the underperforming endowment policy. Rather, the underperforming endowment policy means that when your mortgage comes to the end of its term, you will have to find £25,000 to be able to pay it off in full (assuming the endowment will provide a lump sum of £40,000 to put towards clearing the loan and assuming the original amount you borrowed was £65,000). |
| What you can do to improve this situation is first to check that your mortgage really is still an interest-only deal. If you converted it to repayment at some point – when you re-mortgaged, for example – there’s nothing to worry about. By the time the mortgage comes to the end of its term, the loan will be paid off in full and whatever you get from the endowment will be a bonus as it won’t have to be put towards clearing the mortgage. | What you can do to improve this situation is first to check that your mortgage really is still an interest-only deal. If you converted it to repayment at some point – when you re-mortgaged, for example – there’s nothing to worry about. By the time the mortgage comes to the end of its term, the loan will be paid off in full and whatever you get from the endowment will be a bonus as it won’t have to be put towards clearing the mortgage. |
| If, however, it is still an interest-only mortgage, having to pay your lender’s standard variable rate (SVR) for the last 18 months of its term is the least of your worries. Your main concern should be finding a way of making up the £25,000 shortfall. One option would be to convert the mortgage to a repayment deal but for this to be affordable, you will probably need to extend the mortgage term. A partial solution would be to start overpaying your mortgage. While you are still on your fixed rate, you should be able to overpay up to 10% of the loan each year without penalty. Once you are on the SVR of interest, you should be able to pay off as much of your loan as you like without penalty. | If, however, it is still an interest-only mortgage, having to pay your lender’s standard variable rate (SVR) for the last 18 months of its term is the least of your worries. Your main concern should be finding a way of making up the £25,000 shortfall. One option would be to convert the mortgage to a repayment deal but for this to be affordable, you will probably need to extend the mortgage term. A partial solution would be to start overpaying your mortgage. While you are still on your fixed rate, you should be able to overpay up to 10% of the loan each year without penalty. Once you are on the SVR of interest, you should be able to pay off as much of your loan as you like without penalty. |
| What is not an option is remortgaging with another lender for the final 18 months of the loan as the minimum term lenders will offer is usually five years. | What is not an option is remortgaging with another lender for the final 18 months of the loan as the minimum term lenders will offer is usually five years. |
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