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Worried About Repaying Your Mortgage?

Written By On 04/05/2013

The FCA contacted lenders to see if their interest only mortgage clients could afford to pay them back when their loan term expires. Nearly three million householders will need to settle their interest only loans within thirty years and it seems that only one in ten borrowers has a strategy in place to repay it at the end of their term.

The Financial Conduct Authority who succeeded from the Financial Services Authority (FSA) have been put in place to regulate the financial industry.

Boss of the new watchdog authority Martin Wheatley, initially labelled interest only mortgages as "ticking time bombs" and he advises borrowers not to ignore the issue and "take action now". It appears to be worse in the South East and more of a problem with people coming up to retirement age.

The Council of Mortgage Lenders say that over five hundred thousand mortgagees whose interest only loans finishes within the next seven years, will be contacted by their members within a year. The lenders will be trying to offer guidance to their clients about repayment strategies. Paul Smee, Director General of the CML insists there is still time to sort it out providing you start planning.

If you find yourself in this predicament it is advised that you are aware of when the term of your mortgage expires. Mortgage experts advise you to look into the possibility of changing from interest only to a repayment mortgage. This way you will at least be paying off some of the original loan by reducing the capital.

A repayment loan will mean more expensive monthly instalments. You can get some help in comparing mortgages and budget planning at Money Advice Service (GB)

Mark Harris, from Savills Private Finance says there are other options if you cannot afford to switch. He advises to "overpay when you can". He says

Most lenders will let you overpay by up to ten per cent 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 re-mortgage, as some lenders won't let you borrow more than fifty to seventy per cent of the value of your home on an interest-only basis.