A quarter of interest-only borrowers face mortgage shortfall
Interest-only mortgage borrowers who may not be able to pay back their loan are being warned to take action.
Interest-only mortgage holders are being warned of a ticking-time-bomb, with a quarter (27%) of them potentially unable to pay back their loan, according to OneFamily.
The study from the financial mutual and the Cebr found the expected average unsettled debt is estimated to be £21,000.
Nearly one in five (18%) mortgage holders admit they do not understand their loan, while almost a quarter (23%) don’t know what interest rate they are paying.
Most worrying is that one in 10 interest-only mortgage holders say they have no plan in place to pay off their mortgage, and no idea how they will do so when the debt is due.
Simon Markey, CEO of OneFamily, said: “Our research adds to a disturbing picture facing thousands of homeowners who do not yet know how they are going to meet their mortgage obligations. With many just not sure what to do, it’s vital they seek advice on all the options including new Lifetime Mortgages which can help them pay off their interest-only mortgage, release capital for other adventures, and stay in the home they love.”
Double check your plan
The study also found that those who do have plans for repaying their interest-only mortgage may find they need to rethink their strategy. For example, one in four (24%) mortgage holders plan to sell and move somewhere else to pay off their initial loan, but a fall in house prices could mean this isn’t a realistic option.
One in four (24%) mortgage holders plan to pay off the loan over time by making overpayments, but evidence shows that many fail to do so leaving them with an unmet debt at the end of the mortgage period.
One in five (19%) mortgage holders plan to use cash from endowment policies, but there is no guarantee that their endowment will deliver the returns they need.