Unless they plan ahead to pay the shortfall, they still owe their lender money when the mortgage ends.ĭuring the COVID-19 pandemic, almost 2 million borrowers took advantage of mortgage payment deferrals to ease the pressure on their finances. Shortfalls on repayment mortgagesīorrowers in financial difficulty sometimes switch to an interest-only mortgage for a brief period or convert their mortgage permanently. Because the payments cover both capital and interest, the monthly instalment is more expensive than if the borrower only paid the interest. It offers the borrower security that if they keep the payments up to date, the mortgage will be paid off in full when the term ends.
A repayment mortgage allows the borrower to pay off some of the capital each month, along with a portion of the interest. This can leave the homeowner with limited options: sell, remortgage, or face possession action in the courts. Once a mortgage term has ended, any outstanding balance is due immediately. The mortgage term is the entire length of time the mortgage is set to be paid over (often 25 or 30 years), not the duration of a particular product such as a fixed rate, which can be much shorter. Some interest-only borrowers have a way of paying off the balance when they reach the end of their term, but many more do not. Housing Matters talks to Charles Roe, Director of Mortgages at UK Finance, Debt Camel website author Sara Williams, and Syed Rahman from Shelter’s Specialist Debt Advice Service about the problems borrowers can face at the end of their mortgage term, and the options available.Īlmost half a million interest-only mortgages are due to end before 2027.
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