Are you part of the ticking time bomb?

Are you part of the ticking time bomb?

Are you part of the ticking time bomb?

I strongly believe 2014/15 is the year to become Financially Fit, if your house is not in order this is the time to turn that around. Having worked as a mortgage and protection advisor for many years I have seen a few scenarios and had the pleasure of working with clients to make their home or investment work for them.

One issue however is causing me great concern and forcing me into action. I have two burning questions…

  1. Are your home finance arrangements best for your current situation?
  2. Do you have an interest only mortgage?

Yes – There are thousands of people like you on an interest only mortgage, who need to take the time to get financial advice.

Before the recession began, these types of mortgages were very popular as the monthly costs are lower than that of capital repayment mortgages. Back in 2007 in the height of the boom, 33% of all mortgages were interest only* and a vast majority had no specific repayment plan.

My Concerns

Too many are part of the ticking time bomb. I believe, there are more than 40% of 40 -55 year olds who currently have an interest only mortgage and are faced with homelessness in their later years; as they have no means to repay at the end of the term. People are simply not prepared and homes are at risk.

An Interest Only Mortgage

You are only paying off the interest every month and the full loan amount will need to be paid back at the end of the term.

The Risks

If the value of your house falls or you took out a mortgage in excess of 100% of the property value, the amount you owe could be greater than the value you would receive if you sold the property. Many lenders now have changed their criteria on interest only mortgages and their acceptable repayment vehicles. Many lenders now require a higher equity amount within a property if you have an interest-only mortgage, alongside stringent requirements for particular repayment vehicles to be in place.

If you currently have an interest only mortgage and do not have a repayment vehicle in place you are at risk.

Options

By switching to a repayment mortgage you would be paying off the loan as well as the interest, meaning you would not owe anything at the end of the mortgage term and would no longer be at risk.

The monthly payments on a repayment mortgage would however be higher than that of an interest only mortgage so it is important to review your finances to see what you can afford to pay.

Another option which would not increase your monthly payments by as much would be a part repayment, part interest only loan. This type of mortgage means you would be paying off some of the capital and would therefore owe less at the end of the mortgage term.

What you need to do?

It is always advisable to review your current mortgage and ensure it is the right choice for you. Existing interest-only borrowers will also need to think about the impact of the criteria changes will have on them and their future. There may be limited options available when re-mortgaging or moving house, so it is always best to get advice now to avoid being unable to move forward with your plans in the future.

What I can do to help?

Thankfully I can offer a full mortgage advice service and can look at all the options available to you and discuss the best solutions for you.

There are many things to take into consideration when reviewing a mortgage such as general insurance and protection; I offer a full service in insurance so why not contact me today? To arrange a review, the sooner you do the better you will feel.

 

*Figures from the Council of Mortgage Lenders

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

 

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