An interest only mortgage? Have you thought about repaying it?
It was recently reported that “Around 60% of UKAR’s total borrowers took out interest-only mortgages. Of this proportion, two-thirds have either no idea how they will repay the loan or only the haziest idea. Some 5% do not even know that they have an interest-only loan.”
Many Landlords chose an interest only product especially when there was a rising housing market. Some investors kept their monthly payments to a minimum in order to keep the surplus to create a further deposit for a new property. During the rising market many Landlords were also able to refinance their properties to release equity to fund further purchases. Thoughts also centred around the increase in house prices being able to provide equity which would pay off the mortgage at the point of sale. However as house prices are reported to be falling should you consider making payments against the capital on your buy to let property without delay?
Your monthly payment to the lender on an interest only mortgage will not be repaying any part of your loan – it will purely be an interest payment. If you do not have a repayment vehicle in place then at the end of the mortgage term you may not be able to repay the mortgage.
Repayment vehicles have changed over the years and many consumers have benefited from investing money in ISA accounts which are not only tax efficient but can be used to repay the capital balance. Others have found long term savings accounts or pension plans which have provide a good return on their deposits which again can be used to repay capital.
Check the terms of your mortgage as you may be allowed to make overpayments each year which will assist in the slow decrease of the amount borrowed and of course will have an impact on the level of interest being paid on a monthly basis.
Many cautious consumers have started paying down or paying off debts making the most of low interest rates on borrowings as commonly now savings often attract a lower interest rate than the borrowing interest rate. So if the rent you are receiving is in excess of mortgage interest only payment then you should consider your options – spend, save or pay off?
Make an appointment with a mortgage broker or better still a financial adviser who will be qualified to advise you on the most tax efficient possibilities personally available to you. They may be able to provide you with options that you may not be aware of but regardless be sure to have a plan in place to repay your loan when the time comes.