Twenty-five years ago, Robert bought a flat in Brixton with an interest-only mortgage. Over the years that flat has become his much-loved home, a place where he feels rooted in his local community. He added a sound-proof studio so he could work from home as a vocal coach and practice both piano and singing, keeping his passion for music alive.
It’s an important part of Robert’s life, not to mention his job. So when his interest-only mortgage came to an end but he couldn't afford to pay off the lump sum still owing, he faced some difficult decisions.
Coming to the end of his interest-only mortgage
At first, Robert thought his only option was to sell his home. As he was approaching retirement age, extending his mortgage or switching to a new lender was difficult. His business meant he had to stay living close to his clients in London, but selling and downsizing to a smaller property wouldn’t give him the space he needed. He would also need to install another sound-proof studio in order to continue teaching – that would cost thousands of pounds.
“I started to think - what am I going to do when my interest-only mortgage ends? I found this flat 25 years ago. It was advertised at £87,000. I recently had it valued for £1 million, which was… wow!”
So was there a way he could use that value to stay in his much-loved home?
Coming to the end of your interest-only mortgage?
If you’ve reached the end of your interest-only mortgage and don’t have enough money set aside to cover the loan, you could be wondering what your options are. We look at what to think about if you can’t repay your interest-only mortgage.
A lifetime mortgage meant Robert could stay in the home he loves
Robert started to think about his options. When he explored taking out a lifetime mortgage, he thought it could be the right fit for him.
A lifetime mortgage is a type of equity release that lets you access tax-free cash from your home without needing to move out. You have to be a homeowner aged 55 plus to take one out (or over 50 for our Payment Term Lifetime Mortgage). It’s a loan secured against your home that you don’t need to repay until you die or move into long-term care.
Robert adds: “It’s wonderful to know that I can stay here the rest of my life, without paying anything, and then the debt being paid at the end of my life. It takes the pressure off, and allows me to continue a great quality of life.”
You don’t have to pay anything until you die or move into long-term care if you don’t want to. But if you have the financial means you can choose to repay some of the loan or some or all of the interest. If you choose not to though, the interest payments will be added to your loan and can build up quickly over time. In this case, there might be cheaper ways to borrow money. The lifetime mortgage might impact any means-tested state benefits you receive, too.
While Robert didn’t have any dependents, if you’re thinking about family inheritance in the future, it’s important to remember that equity release will affect the size of your estate when you die. You can learn more about equity release and inheritance tax in our article.
Your later life mortgage options
Robert chose a lifetime mortgage. But there are alternatives if you’re over 50 and looking to release money from your home to pay off an existing mortgage. If you prefer, you can take out a Retirement Income Only mortgage (RIO) or a Payment Term Lifetime Mortgage (PTLM), where you pay the interest off each month.
Just like a lifetime mortgage, you only pay them off in full when you die or move into long-term care. The difference is that if you don’t keep up your monthly repayments, as a last resort your home may be repossessed.
You can only take out a later life mortgage through a qualified financial adviser. They’ll make sure you understand the products, and make sure they’re right for you. If you don’t have an adviser, you can find one at Unbiased.
If you’re thinking about equity release, it could help to learn a bit more about it. We have articles on topics like:
- Is equity release right for you?
- Downsizing or equity release?
- Equity release interest rates
- Frequently asked questions about equity release
- Mortgages in retirement
And our lifetime mortgage calculator will show you how much money you could release from your home.