934,000 homeowners with interest-only mortgages do not have a plan in place for how to pay off the final balance of their loan come the end of the term, according to Citizens Advice.
When you take out an interest-only mortgage, your regular monthly payments consist solely of the interest being accrued on the balance. You donít need to actually pay back the balance until the end of the term. Because of the lower monthly payments, interest-only mortgages have typically been popular among new and old families alike. Interest-only mortgages were often sold as an all-round cheaper option, and millions were given out before the regulations governing there distributions became somewhat more restricted three years ago.
Now, many homeowners who are reaching the end of their term, with hundreds of thousands of pounds to pay off, are left wondering why they were given the loans in the first place, when their means did not, and still do not, afford them the luxury of being able to save up enough money to be able to simply pay off the balance of the mortgage once the term is up.
Findings from Citizens Advice showed that 934,000 customers with interest-only mortgages had no real repayment plan in place and estimate that almost half of those customers hadnít even considered the issue at all. Citizens Advice report that there are around 3.3 million customers with interest-only mortgages at the moment, meaning that almost a third of them are seriously struggling to pay them off.
Mortgage providers are being put under increasing pressure to take action to help borrowers left panicking over the size of the debt that they are going to have to repay. This action includes, in some cases, offering customers the opportunity to convert their existing interest-only plans into ëlifetime mortgagesí. Customers with lifetime mortgages may stay in their existing home throughout their retirement, paying interest on the balance (if they are able to), with the remaining balance being paid off either when the customer dies or when they have to vacate their property.
Already, banks and building societies do attempt to get in touch with borrowers who have interest-only mortgages to try and warn them of the need to put together some kind of plan to pay off their debts. A spokesman for the Council of Mortgage Lenders has said:
ìLenders will continue to communicate directly with customers in a variety of ways and to raise consumer awareness. Borrowers should not ignore attempts to communicate with them. The lender is trying to help and reduce the risk of shocks at the end of the mortgage term.î
There is progress in the general approach to interest-only mortgages on the part of the lenders, but the various bodies involved are keen not to underplay the need for responsibility on the part of the borrowers.
Watchdogs expect that it will be around the year 2027 that the wave of repayment issues will come into effect, when the swathed of interest-only mortgages taken out in the early years of the millennium start to reach their repayment dates en masse.
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