Interest-Only Mortgage Payment Calculator #mortgage #calclator


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Home Financing Tips

  • Interest-only mortgage rates can change as frequently as monthly or may be fixed for up to 10 years or more. Make sure that you know how your loan adjusts.
  • You may wish to bookmark this page so you can easily return and recalculate your payment before your next rate adjustment.

Interest-Only Mortgage Payment Calculator

Find out how much your payment would be on an interest-only mortgage during the interest-only period or use our payment calculators for fixed rate mortgages or adjustable rate mortgages or see the payment schedule for interest-only loans that are past the interest-only period. Make sure that you can afford to make your mortgage payment when the interest-only payment ends even if the interest rate rises.

Interest-Only Payment Calculator – Help

Interest The portion of your mortgage payment that is due to the interest rate being applied to the principal balance. The Total Interest for a mortgage is the sum of all interest paid over the life of a loan. Interest Only Interest-only mortgages allow borrowers to make interest-only payments for a specific period of time. Required mortgage payments can be significantly lower during the interest-only period since the borrower is not required to pay down the principal balance during that time. However, the borrower is taking on more risk since the balance is not being paid down. Interest-Only Mortgages come in a wide variety of types, including both fixed and adjustable rate mortgages. Interest Rate The percentage of the principal balance of your mortgage that determines how much interest you must pay. The interest rate on your mortgage may change or remain the same depending on the type of loan you have. Loan Amount The initial principal balance or your mortgage at closing. Principal The portion of your mortgage payment that is used to pay down the current balance of your mortgage. The principal balance represents how much you owe on the mortgage.

2016 MyHomeLoanTools.com. All rights reserved.


Interest-Only Home Loan Payment Calculator: Interest-Only Mortgages #jumbo #mortgages


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When applying for a mortgage loan for your home, you can choose between a standard loan and an interest only loan. With an interest only loan, you will pay only on the interest when you make your monthly payments and you will eventually be called upon to pay the principal. It is a wise financial decision to compare the two types of loans before deciding which one is best for you.

If you wanted to borrow $250,000.00 for the purchase of your home, you might be offered a standard loan with a 5.000% interest rate or an interest only loan with a 4.750% interest rate, with both being 30 year loans. With an interest only loan, your monthly payment would be $989.58, while a standard loan would be $1,342.05. Under this plan, the total interest only cost would be $356,250.00, while the total standard loan cost would be $483,139.46.

Paying an Interest-Only Mortgage

A 30-year, fixed-rate mortgage is the traditional loan choice for most homebuyers. However, the loan is inflexible, and it may not offer every buyer the options they need to meet their financial goals. For example, some home buyers may not have the down payment or other financial credentials they need to get the 30-year mortgage for the home they want to buy. Other home buyers may want to free up cash to invest in other opportunities while still taking advantage of a hot real estate market. In these and other instance, an interest-only mortgage may be the right option.

There are Some Advantages

The attraction of an interest-only loan is that it significantly lowers your monthly mortgage payment. Using our above estimator, on a $250,000 house with a 4.75 percent interest-only rate, you can expect to pay $989.58, compared to $1,342.05 for a conventional 30-year, fixed-rate loan at 5 percent interest.

Investors often choose an interest-only loan as a way to keep their expenses low while they renovate or market a home for resale. The strategy is a smart one in a hot housing market where prices are appreciating fast and investors can plan to make a fast resale for a profit.

Those interested in investing may also choose an interest-only loan so they can put their money toward higher-yield investments.

Homeowners who can’t quite afford the home of their dreams but who expect to increase their earnings potential in a few years’ time may also find an interest-only loan to be the solution they need. For example, if a couple expects one partner to return to the workforce after caring for children or to receive a big promotion, they can get an interest-only loan at the start of their mortgage, then transition to a traditional loan when their financial situation improves. They can then purchase the home of their dreams without having to wait for their financial situation to adjust.

Risks of an Interest-Only Loan

There are many risks associated with interest-only home loans, so it is important to carefully consider all the options before choosing one.

Because you are only paying interest, you are not repaying principal to build equity. If you are trying to sell your home before the loan comes to term, you are betting on the value of your home appreciating in a very short time. If you lose that bet, you could end up owing a lot more money – or losing money in a sale. To minimize that risk and build equity one can periodically make extra payments .

Interest-only loans typically last for a term of five or 10 years. Within that time, the interest rate may adjust as often as monthly. If that’s the case, you could end up paying much more than you bargained for when you took out the loan. At the end of the loan, you have to either get another interest-only loan, or you have to get a conventional loan. Since you have built no equity up to that point, you can expect to have a significantly increased payment as you try to catch up on the principle.

In some cases, you may get negative amortization with an interest-only loan. That means that you aren’t even paying the full interest on the loan, so when the loan comes to term, you will have a higher balance than when you started paying it.

Calculating the Risk

By understanding all the risks and benefits associated with interest-only loans, you are in a good position to make the right decision for your family. You can use the above calculator to help you determine what kind of payments you can expect with an interest-only loan compared with a traditional mortgage, then use that information for educated financial planning.

You can use this tool to compare interest only mortgages to fully amortizing adjustable rate and fixed-rate mortgages.

Money Saving Tip

How much money could you save? Lock in low rates today


Interest-Only Mortgage Payment Calculator #bad #credit #mortgage


#interest only mortgage calculator

#

Home Financing Tips

  • Interest-only mortgage rates can change as frequently as monthly or may be fixed for up to 10 years or more. Make sure that you know how your loan adjusts.
  • You may wish to bookmark this page so you can easily return and recalculate your payment before your next rate adjustment.

Interest-Only Mortgage Payment Calculator

Find out how much your payment would be on an interest-only mortgage during the interest-only period or use our payment calculators for fixed rate mortgages or adjustable rate mortgages or see the payment schedule for interest-only loans that are past the interest-only period. Make sure that you can afford to make your mortgage payment when the interest-only payment ends even if the interest rate rises.

Interest-Only Payment Calculator – Help

Interest The portion of your mortgage payment that is due to the interest rate being applied to the principal balance. The Total Interest for a mortgage is the sum of all interest paid over the life of a loan. Interest Only Interest-only mortgages allow borrowers to make interest-only payments for a specific period of time. Required mortgage payments can be significantly lower during the interest-only period since the borrower is not required to pay down the principal balance during that time. However, the borrower is taking on more risk since the balance is not being paid down. Interest-Only Mortgages come in a wide variety of types, including both fixed and adjustable rate mortgages. Interest Rate The percentage of the principal balance of your mortgage that determines how much interest you must pay. The interest rate on your mortgage may change or remain the same depending on the type of loan you have. Loan Amount The initial principal balance or your mortgage at closing. Principal The portion of your mortgage payment that is used to pay down the current balance of your mortgage. The principal balance represents how much you owe on the mortgage.

2016 MyHomeLoanTools.com. All rights reserved.


Interest-Only Mortgage – Pros and Cons Interest-Only Mortgage #mortgage #calculator #with #amortization #table


#interest only mortgages

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Interest-only mortgages

  • Make sure you understand the terms of an interest-only mortgage before you sign.

    How interest-only mortgages work
    When you take out a traditional mortgage, you pay the lender a monthly amount that s a blend of principal plus interest. The principal goes to repayment of the money you borrowed. The interest is what the financial institution charges for the use of the money.

    When you take out an interest-only mortgage, you pay only interest every month for a fixed period of time — usually the first five to 10 years. Then, depending on the term of your mortgage loan. you have 20 to 25 years to repay all of the principal, plus interest. You can pay money toward the principal during the interest-only period, but make sure your interest is recalculated on the new balance.

    An interest-only loan could be ideal for you if you want to keep your monthly payments low and are not concerned about falling home values. Refinancing with an interest-only mortgage is an idea you might want to consider if you are experiencing a temporary financial squeeze — if, for instance, you or your spouse has chosen to go back to school, or one of you has decided to take a few years off with your children. Paying only interest for a few years could help you to stay in your current home, even though you can t make your conventional mortgage payments for the time being. Of course, remember that you will only be paying interest during that time and not paying down the principal of the loan.

    Your payments rise later
    When you take out an interest-only mortgage, whether it s for the purchase of a new home or to refinance your current home, you must bear in mind that when the five- or 10-year interest-only period expires, your payments will increase. In fact, they will be much higher than if you had taken out a conventional mortgage. This is because you must now pay off the principal in a much shorter period of time.

    So before you opt for an interest-only mortgage, make sure that you will be able to afford the higher payments you will face in five to 10 years, or you will face refinancing — possibly at a higher interest rate — or selling your home.

    More affordable during the first few years than a conventional mortgage that charges both interest and principal.

    Leaves you no better off when the interest-only period expires than if you had rented for five or 10 years.

    May offer a lower initial monthly payment.

    Eventually requires you to repay the entire principal owing at an accelerated pace, with much higher monthly payments.

    Allows you to spend the money you save in the first few years on other priorities.

    You could go upside-down on your mortgage loan, if the house declines in value during the interest-only period of your loan.


  • Buy-to-let: is an interest-only mortgage the best bet? #physician #mortgage #loans


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    Buy-to-let: is an interest-only mortgage the best bet?

    My wife and I are buying our first property to let and friends and mortgage brokers say we should have an interest-only mortgage. This sounds dangerous as it means the mortgage capital will never reduce. We prefer the idea of the rent paying down the loan, which would mean the tenant effectively “buys the property for us”. But is this the best financial route?

    Most landlords use an interest only mortgage for two reasons, according to David Lawrenson of Lettingfocus.com: first, it maximises monthly cashflow; and, secondly, it is tax-efficient.

    “Most landlords want as much free monthly cashflow as possible,” explained Mr Lawrenson. “That’s what interest-only provides.”

    Related Articles

    Monthly payments on an interest-only loan (where no capital is being repaid) are far less than on a repayment deal (where interest is being paid along with some element of capital repayment).

    Where there is still a long mortgage term outstanding, interest-only payments can be 45pc lower each month than standard repayments.

    This means more free cashflow each month, which the landlord typically uses to buy other properties and grow their portfolio.

    The second reason is tax efficiency. Mortgage interest payments can be fully offset against rental income (along with other eligible expenses) when working out your tax bill. So maintaining a large interest-only mortgage can be beneficial.

    Say you let a property for £1,600 per month. Your interest-only mortgage repayments are £600, so the most you can be taxed on each month (before other expenses) is £1,000. If you used a repayment mortgage charging the same rate your monthly payments would be nearer £1,000.

    But the interest and tax-deductible element would still be £600. The difference is that you’d have about £400 less free income from the property.

    More importantly, by repaying the capital as you went along with your repayment loan, you would be reducing the part of the monthly payment made up of interest. More of your rental income would therefore be taxable and your tax bill would rise. Eventually the loan would be repaid and there would be zero interest cost to offset.

    This is why many landlords prefer to take the maximum income out of their buy-to-let and do something else with the money other than reduce the mortgage. For instance, the extra each month that would have been the capital repayment could be invested into an Isa where it can grow tax-free and perhaps become the eventual means of clearing the buy-to-let mortgage.

    Mr Lawrenson added: “Of course, the interest-only landlord needs to have a plan to clear the mortgage debt at the end of the mortgage term.”

    Small landlords who complete their own tax returns will be familiar with the property sections of the self-assessment form. If you have an interest-only loan it’s easier to work out your mortgage costs: basically everything you’ve paid to the lender can be entered as a qualifying cost.

    But with a repayment loan you’ll need to look at the mortgage statement, where interest payments should be stated separately from capital repayments. “Some lenders, annoyingly, make their statements over a 12-month period which doesn’t tally with the tax year,” said Mr Lawrenson. “In this case you have to ask the lender to provide the figures for your return.”


    Interest-only mortgage problem? The solutions explained #arm #mortgage #calculator


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    Interest-only mortgage problem? The solutions explained

    The extent of the looming crisis in interest-only mortgages has been laid bare by the new financial regulator amid warnings that unless it is tackled urgently, mass evictions may follow.

    The Financial Conduct Authority (FCA) this week asked mortgage lenders to check whether interest-only customers could pay back their loans and issued guidance for lenders on how to treat interest-only borrowers.

    The new City watchdog said more than 2.6 million interest-only mortgages would be due for repayment over the next 30 years, and one in 10 people on these deals had no repayment plan.

    Up to 1.3 million borrowers with interest-only loans, which allow borrowers to pay off interest but not the capital until the end of the term, face shortfalls averaging around £72,000, with customers too optimistic about their ability to pay.

    Regulators warned that borrowers facing the most urgent problems those whose loans were due to end before 2020 were typically high-income individuals approaching retirement, largely based in southern England.

    Related Articles

    Martin Wheatley, the FCA’s chief executive, who has previously labelled interest-only mortgages a “ticking time bomb”, said: “By acting now we are aiming to nip this problem in the bud. My advice to borrowers is not to bury your head in the sand take action now.”

    Over the next 12 months more than half a million home owners whose loans are due to mature before 2020 will be contacted about their repayment plans.

    The Council of Mortgage Lenders said its members would be stepping up contact with borrowers with interest-only loans. “Most people, even if they have not yet done so, have time to plan a satisfactory strategy for when their mortgage reaches maturity,” said Paul Smee, the trade body’s director-general.

    Interest-only loans were once hugely popular, as they allowed buyers to borrow more for a given monthly repayment.

    They were sold heavily before the credit crisis and accounted for a third of all new mortgages in 2007, but lenders have now largely stopped offering them. There were 811 interest-only mortgage deals available in December 2008, according to Moneysupermarket.com, the comparison service, compared with just 144 now. This reduced competition will inevitably mean higher rates on the remaining deals.

    Tighter rules on all home loans will be introduced next April by the FCA, including closer scrutiny of a borrower’s ability to repay the money.

    It is thought that, despite the two reports’ findings for the FCA, there is nothing to suggest that interest-only mortgages were widely mis-sold. Only 2.5pc of customers with interest-only mortgages said they were not aware that they needed a repayment plan when they took out the loan and still didn’t have one in place.

    The research, which excluded buy-to-let mortgages, uncovered three “peak periods” when interest-only mortgages would mature.

    The first spike is in 2017/18, largely as a result of endowment mortgages sold in the Nineties and early years of this Millennium. The other two peaks are in 2027/28 and 2032 and typically include individuals with higher debt levels and low or negative equity in the property.

    If you have an interest-only mortgage you should check when the loan is due for repayment and work out how much you will owe, then calculate how much you need to save each month (the government-backed Money Advice Service has a calculator at moneyadviceservice.org).

    Mortgage experts said those worried about repaying their interest-only mortgage should ideally switch to a repayment loan, where borrowers pay off the interest and the amount borrowed, known as the capital, over the course of the term. However, switching to a repayment mortgage will increase monthly payments.

    A £50,000 mortgage at 3pc interest will have interest-only monthly payments of £125, which will increase to £898 if you switch to a repayment loan and aim to pay it off in five years, according to SPF Private Clients, the mortgage broker. To repay the loan in 10 years would mean monthly payments of £485.

    Mark Harris, SPF’s chief executive, said: “If you are on interest-only and can’t afford to switch to a repayment mortgage the ideal option there are a few other choices available to you.

    “Overpay when you can. Most lenders will let you overpay by up to 10pc of the mortgage amount per annum, so take advantage of this while interest rates are low. This will also increase your equity, making it easier to remortgage, as some lenders won’t let you borrow more than 50pc to 70pc of the value of your home on an interest-only basis.

    “If you have savings sat in an account not earning much interest, you could also consider using these to reduce your outstanding mortgage.” He added: “Some lenders, such as Santander, will let you take 50pc of the loan on an interest-only basis, with the rest on a repayment basis, so this might be another option if you can’t afford to switch the whole amount to repayment.”

    Ray Boulger of John Charcol, another broker, advised borrowers to contact an independent mortgage broker before they negotiated with their lender.

    “Their lender will only be able to talk to them about what options, if any, the lender can offer, whereas a good broker can also consider other options,” he said. “This will significantly strengthen their negotiating position.”

    If you have an endowment policy backing a mortgage and have been told that you have a shortfall, you could cash in your endowment to fund some capital repayment.

    It is worth speaking to a financial adviser in this situation, as whether this will work for you will depend on your financial situation. There can be penalties for cashing in early, for example.

    Most borrowers will save into an additional investment product to cover the shortfall. Options include a stocks and shares Isa or making regular payments into a cash Isa to build up a savings pot.

    Those who are near the end of their mortgage term will have the toughest choices and may have to extend their borrowing for longer. However, this may not be an option if you are approaching retirement. A more drastic solution will be to sell your property and buy a smaller one or rent to release cash to pay off the mortgage.

    If you are aged 55 or over, there are two further options available to you. When you draw your company or personal pension, you can take 25pc as a tax-free lump sum, which could be used to clear the shortfall, although you should be fully aware of the implications for your standard of living in retirement. You could also consider equity release.

    The schemes release some of the equity, or cash, tied up in your home, giving you a lump sum or a regular income with no interest to pay until the borrower dies or moves home. However, it will mean smaller inheritances and should be considered only after consulting a financial adviser.

    Stephen Lowe, a director of Just Retirement, an equity release lender, said: “Many people don’t want to downsize at this early stage in their life and we are seeing increasing numbers of people using equity release as an alternative to repay the existing mortgage.”

    Alan Stevens, 73, used equity release to pay off a £65,000 interest-only mortgage in 2011

    Mr Stevens, a retired mechanic from Leighton Buzzard in Bedfordshire, said: “When we first saw our house, we fell in love with it as a family. We didn’t want to give it up and we still don’t want to give it up.

    “We needed a way to pay the mortgage, so in 2011 we took out equity release.” Mr Stevens had taken out the interest-only mortgage in 1991. “The interest rate was reasonable and it appealed more than a repayment mortgage because it cost less,” he said.

    “We planned to downsize at the end of the term and pay off the capital that way. That was the original plan, but feelings change.” He added: “Once we’d discussed it as a family and the children were in agreement, we were very happy to do it.

    “That’s the important part make sure the family know what’s going on.”

    Find out how much cash you could release with The Telegraph Equity Release Service calculator.


    Ways of repaying an interest-only mortgage – Money Advice Service #current #mortgage #loan #rates


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    Ways of repaying an interest-only mortgage

    With an interest-only mortgage your repayments only cover the interest on the amount you borrowed. Find out how to work out a repayment plan to pay off the capital at the end of the mortgage.

    How does an interest-only mortgage work?

    With repayment mortgages you pay off the interest and some of the capital each month, guaranteeing that the mortgage will be cleared at the end of the term.

    With interest-only mortgages, you only pay off the interest on the amount you borrow. You use savings, investments or other assets you have (known as ‘repayment vehicles’) to pay off the total amount borrowed at the end of your mortgage term.

    Example

    If you have a £100,000 interest-only mortgage for 25 years, you’ll pay the interest on the amount you borrowed each month.

    When the 25 years are up, you’ll have to pay the full £100,000.

    Use our mortgage affordability calculator to find out how much you can afford to borrow.

    Your repayment plan

    You must be able to show the lender how you’ll repay the mortgage at the end of the term.

    You – not the lender – are responsible for putting in place and maintaining a credible repayment plan to repay the original loan.

    You can’t rely on the promise of a future windfall such as an inheritance or bonus. You also can’t speculate that property prices will rise enough to allow you to buy a smaller home and still pay off the mortgage.

    The lender will check at least once during your mortgage term that your repayment plan is on track to cover your mortgage.

    Repayment vehicles

    Examples of repayment vehicles include:

    Your lender will take a view about whether your chosen repayment vehicle looks likely to pay off the capital at the end of the mortgage.

    Unless you understand how an investment works, it’s best to speak to a financial adviser .

    Work out how much you need to save

    Use our simple savings calculator to get an idea of the monthly amount you’ll need to put away in order to clear your mortgage at the end of the term.

    You need to put in the mortgage amount and the length of time you have until it ends.

    Then add in different rates of interest or growth you can expect on average over the term.

    Pick a low and a high figure (2% – 5%) to see the worst and best result.

    Important

    The value of investments can rise and fall and it’s possible that you could lose all of your money before you’re able to pay off your mortgage. It’s important to review your investments regularly.

    Ideally you’d want to be able to switch into much safer cash-based products as the term of your mortgage gets closer. That way you’ll have the peace of mind that you’ve got enough to cover your mortgage. Speak to a financial adviser about the best investment plan for you.

    Already have an interest-only mortgage?

    Do something about it!

    If you have an interest-only mortgage, review your repayment plan regularly to make sure it’s on track. If you don’t have one in place, act now.

    If you have more than 50% equity in your property and a repayment plan that is on track and accepted by a range of lenders, then you should be okay.

    If you don’t, you may find it difficult to remortgage when your existing deal comes to an end.

    Review your repayment scheme

    It’s essential you review your investment plan regularly and take action if you think it won’t provide sufficient funds to pay off your mortgage. Talk to your lender or get professional financial advice.

    1. Contact your product provider, fund manager or financial adviser and ask if your investments are on track to repay your mortgage.
    2. Add up any separate savings beyond your repayment plan investments and see if you can release any of this money to reduce the loan if your lender will allow.
    3. Call your lender and ask about overpayments or switching to part repayment and part interest only. Check whether you’ll be charged any fees.
    4. If you’re worried that you won’t be able to repay the mortgage, contact your lender and explain the situation. If you can’t work out a solution with your lender, get free advice .

    Re-mortgaging

    Since 26 April 2014, lenders have had to put repayment plans under greater scrutiny and conduct a full affordability assessment with evidence of income. This means that people with interest-only mortgages taken out before 26 April 2014 may find it difficult to get another mortgage.

    When granting new loans, lenders must assess whether or not you can afford to make the necessary payments. This includes cases where you want to remortgage to another lender: your new lender will need to satisfy itself that you can afford the loan.

    Your existing lender is allowed to offer you a new deal (i.e switch to another interest rate deal) as long as it does not involve increasing the amount you borrow (other than any fees for switching).

    If you have an endowment policy

    If you took out an endowment policy to pay off your capital and it looks like it won’t pay out enough to repay the mortgage at the end of the term, there are things you can do now.

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  • Interest-only mortgage problem? The solutions explained #loan #calculators


    #interest only mortgage

    #

    Interest-only mortgage problem? The solutions explained

    The extent of the looming crisis in interest-only mortgages has been laid bare by the new financial regulator amid warnings that unless it is tackled urgently, mass evictions may follow.

    The Financial Conduct Authority (FCA) this week asked mortgage lenders to check whether interest-only customers could pay back their loans and issued guidance for lenders on how to treat interest-only borrowers.

    The new City watchdog said more than 2.6 million interest-only mortgages would be due for repayment over the next 30 years, and one in 10 people on these deals had no repayment plan.

    Up to 1.3 million borrowers with interest-only loans, which allow borrowers to pay off interest but not the capital until the end of the term, face shortfalls averaging around £72,000, with customers too optimistic about their ability to pay.

    Regulators warned that borrowers facing the most urgent problems those whose loans were due to end before 2020 were typically high-income individuals approaching retirement, largely based in southern England.

    Related Articles

    Martin Wheatley, the FCA’s chief executive, who has previously labelled interest-only mortgages a “ticking time bomb”, said: “By acting now we are aiming to nip this problem in the bud. My advice to borrowers is not to bury your head in the sand take action now.”

    Over the next 12 months more than half a million home owners whose loans are due to mature before 2020 will be contacted about their repayment plans.

    The Council of Mortgage Lenders said its members would be stepping up contact with borrowers with interest-only loans. “Most people, even if they have not yet done so, have time to plan a satisfactory strategy for when their mortgage reaches maturity,” said Paul Smee, the trade body’s director-general.

    Interest-only loans were once hugely popular, as they allowed buyers to borrow more for a given monthly repayment.

    They were sold heavily before the credit crisis and accounted for a third of all new mortgages in 2007, but lenders have now largely stopped offering them. There were 811 interest-only mortgage deals available in December 2008, according to Moneysupermarket.com, the comparison service, compared with just 144 now. This reduced competition will inevitably mean higher rates on the remaining deals.

    Tighter rules on all home loans will be introduced next April by the FCA, including closer scrutiny of a borrower’s ability to repay the money.

    It is thought that, despite the two reports’ findings for the FCA, there is nothing to suggest that interest-only mortgages were widely mis-sold. Only 2.5pc of customers with interest-only mortgages said they were not aware that they needed a repayment plan when they took out the loan and still didn’t have one in place.

    The research, which excluded buy-to-let mortgages, uncovered three “peak periods” when interest-only mortgages would mature.

    The first spike is in 2017/18, largely as a result of endowment mortgages sold in the Nineties and early years of this Millennium. The other two peaks are in 2027/28 and 2032 and typically include individuals with higher debt levels and low or negative equity in the property.

    If you have an interest-only mortgage you should check when the loan is due for repayment and work out how much you will owe, then calculate how much you need to save each month (the government-backed Money Advice Service has a calculator at moneyadviceservice.org).

    Mortgage experts said those worried about repaying their interest-only mortgage should ideally switch to a repayment loan, where borrowers pay off the interest and the amount borrowed, known as the capital, over the course of the term. However, switching to a repayment mortgage will increase monthly payments.

    A £50,000 mortgage at 3pc interest will have interest-only monthly payments of £125, which will increase to £898 if you switch to a repayment loan and aim to pay it off in five years, according to SPF Private Clients, the mortgage broker. To repay the loan in 10 years would mean monthly payments of £485.

    Mark Harris, SPF’s chief executive, said: “If you are on interest-only and can’t afford to switch to a repayment mortgage the ideal option there are a few other choices available to you.

    “Overpay when you can. Most lenders will let you overpay by up to 10pc of the mortgage amount per annum, so take advantage of this while interest rates are low. This will also increase your equity, making it easier to remortgage, as some lenders won’t let you borrow more than 50pc to 70pc of the value of your home on an interest-only basis.

    “If you have savings sat in an account not earning much interest, you could also consider using these to reduce your outstanding mortgage.” He added: “Some lenders, such as Santander, will let you take 50pc of the loan on an interest-only basis, with the rest on a repayment basis, so this might be another option if you can’t afford to switch the whole amount to repayment.”

    Ray Boulger of John Charcol, another broker, advised borrowers to contact an independent mortgage broker before they negotiated with their lender.

    “Their lender will only be able to talk to them about what options, if any, the lender can offer, whereas a good broker can also consider other options,” he said. “This will significantly strengthen their negotiating position.”

    If you have an endowment policy backing a mortgage and have been told that you have a shortfall, you could cash in your endowment to fund some capital repayment.

    It is worth speaking to a financial adviser in this situation, as whether this will work for you will depend on your financial situation. There can be penalties for cashing in early, for example.

    Most borrowers will save into an additional investment product to cover the shortfall. Options include a stocks and shares Isa or making regular payments into a cash Isa to build up a savings pot.

    Those who are near the end of their mortgage term will have the toughest choices and may have to extend their borrowing for longer. However, this may not be an option if you are approaching retirement. A more drastic solution will be to sell your property and buy a smaller one or rent to release cash to pay off the mortgage.

    If you are aged 55 or over, there are two further options available to you. When you draw your company or personal pension, you can take 25pc as a tax-free lump sum, which could be used to clear the shortfall, although you should be fully aware of the implications for your standard of living in retirement. You could also consider equity release.

    The schemes release some of the equity, or cash, tied up in your home, giving you a lump sum or a regular income with no interest to pay until the borrower dies or moves home. However, it will mean smaller inheritances and should be considered only after consulting a financial adviser.

    Stephen Lowe, a director of Just Retirement, an equity release lender, said: “Many people don’t want to downsize at this early stage in their life and we are seeing increasing numbers of people using equity release as an alternative to repay the existing mortgage.”

    Alan Stevens, 73, used equity release to pay off a £65,000 interest-only mortgage in 2011

    Mr Stevens, a retired mechanic from Leighton Buzzard in Bedfordshire, said: “When we first saw our house, we fell in love with it as a family. We didn’t want to give it up and we still don’t want to give it up.

    “We needed a way to pay the mortgage, so in 2011 we took out equity release.” Mr Stevens had taken out the interest-only mortgage in 1991. “The interest rate was reasonable and it appealed more than a repayment mortgage because it cost less,” he said.

    “We planned to downsize at the end of the term and pay off the capital that way. That was the original plan, but feelings change.” He added: “Once we’d discussed it as a family and the children were in agreement, we were very happy to do it.

    “That’s the important part make sure the family know what’s going on.”

    Find out how much cash you could release with The Telegraph Equity Release Service calculator.


    Interest-only mortgage problem? The solutions explained #mortgage #estimator


    #interest only mortgage

    #

    Interest-only mortgage problem? The solutions explained

    The extent of the looming crisis in interest-only mortgages has been laid bare by the new financial regulator amid warnings that unless it is tackled urgently, mass evictions may follow.

    The Financial Conduct Authority (FCA) this week asked mortgage lenders to check whether interest-only customers could pay back their loans and issued guidance for lenders on how to treat interest-only borrowers.

    The new City watchdog said more than 2.6 million interest-only mortgages would be due for repayment over the next 30 years, and one in 10 people on these deals had no repayment plan.

    Up to 1.3 million borrowers with interest-only loans, which allow borrowers to pay off interest but not the capital until the end of the term, face shortfalls averaging around £72,000, with customers too optimistic about their ability to pay.

    Regulators warned that borrowers facing the most urgent problems those whose loans were due to end before 2020 were typically high-income individuals approaching retirement, largely based in southern England.

    Related Articles

    Martin Wheatley, the FCA’s chief executive, who has previously labelled interest-only mortgages a “ticking time bomb”, said: “By acting now we are aiming to nip this problem in the bud. My advice to borrowers is not to bury your head in the sand take action now.”

    Over the next 12 months more than half a million home owners whose loans are due to mature before 2020 will be contacted about their repayment plans.

    The Council of Mortgage Lenders said its members would be stepping up contact with borrowers with interest-only loans. “Most people, even if they have not yet done so, have time to plan a satisfactory strategy for when their mortgage reaches maturity,” said Paul Smee, the trade body’s director-general.

    Interest-only loans were once hugely popular, as they allowed buyers to borrow more for a given monthly repayment.

    They were sold heavily before the credit crisis and accounted for a third of all new mortgages in 2007, but lenders have now largely stopped offering them. There were 811 interest-only mortgage deals available in December 2008, according to Moneysupermarket.com, the comparison service, compared with just 144 now. This reduced competition will inevitably mean higher rates on the remaining deals.

    Tighter rules on all home loans will be introduced next April by the FCA, including closer scrutiny of a borrower’s ability to repay the money.

    It is thought that, despite the two reports’ findings for the FCA, there is nothing to suggest that interest-only mortgages were widely mis-sold. Only 2.5pc of customers with interest-only mortgages said they were not aware that they needed a repayment plan when they took out the loan and still didn’t have one in place.

    The research, which excluded buy-to-let mortgages, uncovered three “peak periods” when interest-only mortgages would mature.

    The first spike is in 2017/18, largely as a result of endowment mortgages sold in the Nineties and early years of this Millennium. The other two peaks are in 2027/28 and 2032 and typically include individuals with higher debt levels and low or negative equity in the property.

    If you have an interest-only mortgage you should check when the loan is due for repayment and work out how much you will owe, then calculate how much you need to save each month (the government-backed Money Advice Service has a calculator at moneyadviceservice.org).

    Mortgage experts said those worried about repaying their interest-only mortgage should ideally switch to a repayment loan, where borrowers pay off the interest and the amount borrowed, known as the capital, over the course of the term. However, switching to a repayment mortgage will increase monthly payments.

    A £50,000 mortgage at 3pc interest will have interest-only monthly payments of £125, which will increase to £898 if you switch to a repayment loan and aim to pay it off in five years, according to SPF Private Clients, the mortgage broker. To repay the loan in 10 years would mean monthly payments of £485.

    Mark Harris, SPF’s chief executive, said: “If you are on interest-only and can’t afford to switch to a repayment mortgage the ideal option there are a few other choices available to you.

    “Overpay when you can. Most lenders will let you overpay by up to 10pc of the mortgage amount per annum, so take advantage of this while interest rates are low. This will also increase your equity, making it easier to remortgage, as some lenders won’t let you borrow more than 50pc to 70pc of the value of your home on an interest-only basis.

    “If you have savings sat in an account not earning much interest, you could also consider using these to reduce your outstanding mortgage.” He added: “Some lenders, such as Santander, will let you take 50pc of the loan on an interest-only basis, with the rest on a repayment basis, so this might be another option if you can’t afford to switch the whole amount to repayment.”

    Ray Boulger of John Charcol, another broker, advised borrowers to contact an independent mortgage broker before they negotiated with their lender.

    “Their lender will only be able to talk to them about what options, if any, the lender can offer, whereas a good broker can also consider other options,” he said. “This will significantly strengthen their negotiating position.”

    If you have an endowment policy backing a mortgage and have been told that you have a shortfall, you could cash in your endowment to fund some capital repayment.

    It is worth speaking to a financial adviser in this situation, as whether this will work for you will depend on your financial situation. There can be penalties for cashing in early, for example.

    Most borrowers will save into an additional investment product to cover the shortfall. Options include a stocks and shares Isa or making regular payments into a cash Isa to build up a savings pot.

    Those who are near the end of their mortgage term will have the toughest choices and may have to extend their borrowing for longer. However, this may not be an option if you are approaching retirement. A more drastic solution will be to sell your property and buy a smaller one or rent to release cash to pay off the mortgage.

    If you are aged 55 or over, there are two further options available to you. When you draw your company or personal pension, you can take 25pc as a tax-free lump sum, which could be used to clear the shortfall, although you should be fully aware of the implications for your standard of living in retirement. You could also consider equity release.

    The schemes release some of the equity, or cash, tied up in your home, giving you a lump sum or a regular income with no interest to pay until the borrower dies or moves home. However, it will mean smaller inheritances and should be considered only after consulting a financial adviser.

    Stephen Lowe, a director of Just Retirement, an equity release lender, said: “Many people don’t want to downsize at this early stage in their life and we are seeing increasing numbers of people using equity release as an alternative to repay the existing mortgage.”

    Alan Stevens, 73, used equity release to pay off a £65,000 interest-only mortgage in 2011

    Mr Stevens, a retired mechanic from Leighton Buzzard in Bedfordshire, said: “When we first saw our house, we fell in love with it as a family. We didn’t want to give it up and we still don’t want to give it up.

    “We needed a way to pay the mortgage, so in 2011 we took out equity release.” Mr Stevens had taken out the interest-only mortgage in 1991. “The interest rate was reasonable and it appealed more than a repayment mortgage because it cost less,” he said.

    “We planned to downsize at the end of the term and pay off the capital that way. That was the original plan, but feelings change.” He added: “Once we’d discussed it as a family and the children were in agreement, we were very happy to do it.

    “That’s the important part make sure the family know what’s going on.”

    Find out how much cash you could release with The Telegraph Equity Release Service calculator.


    Ways of repaying an interest-only mortgage – Money Advice Service #self #employed #mortgage


    #interest only mortgages

    #

    Ways of repaying an interest-only mortgage

    With an interest-only mortgage your repayments only cover the interest on the amount you borrowed. Find out how to work out a repayment plan to pay off the capital at the end of the mortgage.

    How does an interest-only mortgage work?

    With repayment mortgages you pay off the interest and some of the capital each month, guaranteeing that the mortgage will be cleared at the end of the term.

    With interest-only mortgages, you only pay off the interest on the amount you borrow. You use savings, investments or other assets you have (known as ‘repayment vehicles’) to pay off the total amount borrowed at the end of your mortgage term.

    Example

    If you have a £100,000 interest-only mortgage for 25 years, you’ll pay the interest on the amount you borrowed each month.

    When the 25 years are up, you’ll have to pay the full £100,000.

    Use our mortgage affordability calculator to find out how much you can afford to borrow.

    Your repayment plan

    You must be able to show the lender how you’ll repay the mortgage at the end of the term.

    You – not the lender – are responsible for putting in place and maintaining a credible repayment plan to repay the original loan.

    You can’t rely on the promise of a future windfall such as an inheritance or bonus. You also can’t speculate that property prices will rise enough to allow you to buy a smaller home and still pay off the mortgage.

    The lender will check at least once during your mortgage term that your repayment plan is on track to cover your mortgage.

    Repayment vehicles

    Examples of repayment vehicles include:

    Your lender will take a view about whether your chosen repayment vehicle looks likely to pay off the capital at the end of the mortgage.

    Unless you understand how an investment works, it’s best to speak to a financial adviser .

    Work out how much you need to save

    Use our simple savings calculator to get an idea of the monthly amount you’ll need to put away in order to clear your mortgage at the end of the term.

    You need to put in the mortgage amount and the length of time you have until it ends.

    Then add in different rates of interest or growth you can expect on average over the term.

    Pick a low and a high figure (2% – 5%) to see the worst and best result.

    Important

    The value of investments can rise and fall and it’s possible that you could lose all of your money before you’re able to pay off your mortgage. It’s important to review your investments regularly.

    Ideally you’d want to be able to switch into much safer cash-based products as the term of your mortgage gets closer. That way you’ll have the peace of mind that you’ve got enough to cover your mortgage. Speak to a financial adviser about the best investment plan for you.

    Already have an interest-only mortgage?

    Do something about it!

    If you have an interest-only mortgage, review your repayment plan regularly to make sure it’s on track. If you don’t have one in place, act now.

    If you have more than 50% equity in your property and a repayment plan that is on track and accepted by a range of lenders, then you should be okay.

    If you don’t, you may find it difficult to remortgage when your existing deal comes to an end.

    Review your repayment scheme

    It’s essential you review your investment plan regularly and take action if you think it won’t provide sufficient funds to pay off your mortgage. Talk to your lender or get professional financial advice.

    1. Contact your product provider, fund manager or financial adviser and ask if your investments are on track to repay your mortgage.
    2. Add up any separate savings beyond your repayment plan investments and see if you can release any of this money to reduce the loan if your lender will allow.
    3. Call your lender and ask about overpayments or switching to part repayment and part interest only. Check whether you’ll be charged any fees.
    4. If you’re worried that you won’t be able to repay the mortgage, contact your lender and explain the situation. If you can’t work out a solution with your lender, get free advice .

    Re-mortgaging

    Since 26 April 2014, lenders have had to put repayment plans under greater scrutiny and conduct a full affordability assessment with evidence of income. This means that people with interest-only mortgages taken out before 26 April 2014 may find it difficult to get another mortgage.

    When granting new loans, lenders must assess whether or not you can afford to make the necessary payments. This includes cases where you want to remortgage to another lender: your new lender will need to satisfy itself that you can afford the loan.

    Your existing lender is allowed to offer you a new deal (i.e switch to another interest rate deal) as long as it does not involve increasing the amount you borrow (other than any fees for switching).

    If you have an endowment policy

    If you took out an endowment policy to pay off your capital and it looks like it won’t pay out enough to repay the mortgage at the end of the term, there are things you can do now.

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