Managing an interest only mortgage.

With an interest only mortgage home-owners are only required to pay the interest accrued. The capital owed does not need to be repaid until the end of the agreed term which is usually 20 or more commonly 25 years.

Mortgage holders including those with an interest only deal, have benefited from low mortgage rates for the last three years ever since the BoE cut the base rate down to 0.50%. However while the BoE has kept the base rate at its low level for yet another month, it is warning home-owners that mortgage rates are not likely to remain low.

It is feared that as wholesale funding rates rise, mortgage holders could face significant rate increases unless they are locked into a long term fixed rate deal.

There is concern that interest only home-owners with low levels of equity could struggle to remortgage and so will revert to lenders higher rate SVRs, This could be problem for an estimated 4 million interest only mortgage holders.

If you have an interest only mortgage do you have a repayment vehicle in place to repay the capital and or a plan for when interest rates rise?

For those on an interest only deal taken out over 10 years ago, the equity built up may be adequate to repay the capital owed, however this will very much depend on how much the property has increased in value. Some areas of the UK have experienced higher house price increases than others, and the fall in house prices since the credit crisis could be a problem for those who bought at the property market peak.

For those on an interest only deal taken out in the last 5 to 7 years higher interest payments will not be good news.

If you have an interest only mortgage taken out just before the financial crisis it may be advisable to switch to repayment mortgage, there are still low rate tracker deals available to take advantage of and some lenders are reducing their fixed mortgage rates.

Whatever your mortgage requirements contact Deal Direct and we will source a competitive offer for you.