The concept was such that interest was paid to the mortgage provider on the balance outstanding every month. Simultaneously, consumers also used to pay into an investment fund. This investment fund matured before the mortgage tenured ended and that gave the consumers enough money to use the capital balance in full. These facilities are no longer in vogue and mortgage providers have stopped offering interest only mortgages. On certain circumstances, the lenders might give this scheme if the borrowers are able to portray a definite resolution of their ability to pay off the loan when the tenure ends.
What goes in favor of the interest only schemes is that by the time the mortgage tenure ends, house prices would have shot up manifold to create enough funds to redeem the loan. However, experts vary with this theory. They have maintained that owing to the credit crisis of housing prices have plunged to a new low, there are possibilities of acquiring negative equity and development does not seem to abate in the near future. Most importantly, in case you are able to pay off the loan by virtue of a rise in your property price, to gain the equity, the house needs to be sold off or remortgaged. But in the recent scenario of the present housing prices and firm lending conditions in place, this becomes increasingly difficult. The conditions look grim now and could be a prime reason to worry in the coming years with no one comprehending any way to get out of this situation.
Consumers can take certain steps if faced with this challenge.
- In case consumers have an interest only scheme in place, which is still active and has not run out of its tenure, they can change into a capital and interest mortgage scheme. They should be ready to make higher repayments every month, though.
- Analyze how much funds you have to pay off the loan before the mortgage tenure reaches the finishing line.
- Talk to a professional financial advisor or the mortgage provider to weigh your options and to check choices available.
- Speak with the lender to keep him in the loop of your prospects and plans to pay off the remaining balance.
Lenders on the other hand, have joined hands to get in touch with the borrowers and explain the consequences of not paying off their debt, which might result in the consumers losing the ownership of their homes. It is also blamed that many interest only schemes were mis sold to the consumers who had no inkling of the methodology of how the mortgage needed to be paid. There is a crisis of enormous proportions that we are staring at as the fear of borrowers unable to pay off their mortgage by the end of the tenure becomes a possibility. The borrower needs to be organized now and work out a solution to pay off the loan when the tenure matures.
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