Exploring options to repay an interest only mortgage
- Our clients were a couple who took early retirement, they lived in a large family home full of happy memories and were looking forward to the next chapter in their life.
- Their family home held substantial value and the interest-only mortgage they had secured was coming to the end of its term and needed to be repaid. The couple had other assets such as investments, which provided adequate income for their lifestyle, and an undrawn private pension fund.
- Their original plan was to repay their interest-only mortgage by selling property investments. However, life doesn’t always go to plan, and they were faced with some curveballs.
- One option for the repayment of their interest-only mortgage was to downsize. But at this stage in their lives, it wasn’t something they wanted to do as their family and friends loved to visit them.
- We also explored selling their investments or taking a lump sum from their pension, however, both had their downsides. The sale of investments and/or property would reduce their regular income and present a Capital Gains Tax burden. And, if they took the amount required as a lump sum from their pension, there would be tax liabilities.
- One thing they were keen on was keeping their tax under control and planned to use this in a later stage of their lives. They still needed to find an alternative way to repay their mortgage due for repayment…
- After careful consideration, together, we decided that a lifetime mortgage was the best way to repay their interest-only mortgage.
- This provided a competitive fixed interest rate for the duration of the lifetime mortgage and all the interest payments would be made from their current income.
- Although downsizing wasn’t on the cards for them at this stage in their life, it was part of their long-term plan after the early redemption charge period of the lifetime mortgage. This meant that the mortgage could be repaid without incurring early repayment charges and the equity in their home would be sufficient to buy another property in the area.
Interest Only mortgage repaid
Their investments were left intact, unsold, continuing to generate regular income for them.
The undrawn pension was intact for future use.
No erosion of equity in their home as their income enables them to pay the interest.