Consumer Rights: Act if you are worried about interest-only home loan

The time is looming for many to find money to pay off their mortgages. Do they have enough?

If you've been reading about interest-only mortgages with a growing sense of unease, it's time to act. Interest-only mortgages have helped many people afford to buy their homes but they don't suit every borrower and not everyone who took one out realised exactly what the risks were. Banks have become much less keen on interest-only loans and some have stopped offering them, and there's growing concern that some may have been mis-sold.

Paying interest only is cheaper than taking out a repayment mortgage so it has been an attractive option. But paying interest only means what it says – you're paying only the interest on the capital you borrowed but you aren't paying anything towards reducing that capital. If you borrow £100,000 you pay monthly interest payments but at the end of 25 years you still owe £100,000. The idea was that you saved into a separate fund each month so that you would have enough savings at the end of the 25 years to clear the £100,000 loan. Endowments and pensions were popular ways of saving. However, some endowment plans didn't do well in the early 1990s, leaving those people with too little to pay off their loans in full now. Paying into a savings fund to repay the loan hasn't been a condition of an interest-only loan since the 1990s so there are people who haven't been saving enough or not saving at all. The latest figures show that people who took out interest-only loans have saved about £72,000 less than they will need on average. many have saved nothing.

If you don't have a savings plan you may have money coming to you which you can use – a lump sum from your pension or an inheritance maybe. If you have no plan in place for paying off the capital you borrowed you need to act now. If you are thinking that none of this was explained to you at the time you took out your mortgage, or that if you'd understood the risks you wouldn't have signed up, you may have been mis-sold your loan. A mortgage adviser should have explained the risk and discussed with you whether you were prepared to take that risk. If you feel you didn't get the most suitable advice you should get advice.

If you don't have enough money to repay the loan when it becomes due your only option may be to sell your home. Some people will have planned all along to sell, pay off the loan and buy something smaller. But others won't want to move and still others will find they don't have enough left to buy a smaller home or that selling quickly is impossible.

If you knew what you were getting into and don't want to sell you need to act now. You are responsible for making sure you have enough money when the time comes. Even if you've got years before the capital has to be repaid any delay will mean you have to save more each month.

Talk to a financial adviser about how much you will need to put aside from now on to clear the loan on time and about whether it might be worth using any savings you do have to reduce the loan immediately. Even if you have a plan in place it might not be building up quickly enough and could leave you with a shortfall, so check regularly to see whether you need to be saving more into it. It might be possible to change to a repayment mortgage where you're paying part of the capital as well as the interest. Many people find this is too expensive but some lucky ones have managed to change to a repayment mortgage, extend the period of the mortgage and pay less each month. Ask whether there are arrangement and exit fees for changing.

Lenders know that some borrowers are having problems and are trying to make sure their customers are on course. Lenders have the option to take legal action to repossess and sell your home if you don't repay your loan on time but most will do their best to work with you to find a better solution. If you have a buy-to-let mortgage you may have less reason to worry. Most buy-to-let loans are arranged on an interest-only basis. Before they lend most lenders want to know that the rent you can charge for the property will be substantially more than the interest on the loan. If you've been saving that surplus you can use that to repay the capital borrowed. But if you don't have enough to repay your capital when the time comes it's not likely to be such an emotional wrench to sell a property you don't live in, provided it has increased in value and you can find a buyer quickly.

If you need help on any aspect of your interest-only mortgage contact the Money Advice Service at www.moneyadviceservice.org.uk

**

Q: I have just had a letter from the HR department at work to say that I was overpaid for several months last year. I think they are probably right but at the time I was doing extra work on a bid for a new contract and getting paid extra for additional hours and for acting at a higher grade. I didn't realise I was being overpaid – it never crossed my mind to check because frankly I had expected a bit more than I got. The firm wants the money repaid but I don't have it. Do I need to get legal advice?

FA New Forest

A: I think you should get legal advice. You may be able to have a half-hour appointment with an employment lawyer at an advice centre for free. Law centres also give free advice on employment issues. An employer can legally make a deduction from an employee's pay if there has been a genuine overpayment. As you accept you owe the money there are no grounds to argue that the overpayment isn't genuine or for refusing to pay it back. However you may be able to negotiate to pay the money back over time. If that doesn't work ask for an interest-free loan from them to help you through the following few weeks. Try to keep the issue separate from the job you're paid to do and the people you work with.

moneyagonyaunt.com

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Sport
footballLIVE: All the latest from today's Premier League matches
News
newsNew images splice vintage WWII photos with modern-day setting
Arts and Entertainment
The star dances on a balcony in the video
music
News
Jennifer Lawrence's Katniss Everdeen learns that Peeta is still alive in Mockingjay Part 1
peopleListen to the actress sing in The Hunger Games: Mockingjay Pt 1
PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

    Reach Volunteering: Charity Treasurer

    Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

    SThree: Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

    Ampersand Consulting LLP: Markit EDM (CADIS) Developer

    £50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

    Day In a Page

    US immigration: President Obama ready to press ahead with long-promised plan to overhaul 'broken system' - but will it get past a Republican-controlled Congress?

    Immigration: Obama's final frontier

    The President is ready to press ahead with the long-promised plan to overhaul America's 'broken system' - but will it get past a Republican-controlled Congress?
    Bill Cosby rape allegations explained: Why are these allegations coming out now? Why didn’t these women come forward earlier? And why has nobody taken legal action?

    Bill Cosby rape allegations explained

    Why are these allegations coming out now? Why has nobody taken legal action? And what happens next for the man once thought of as 'America's Dad'
    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain

    You know that headache you’ve got?

    Four years of excruciating seizures caused by the 1cm tapeworm found burrowing through a man's brain
    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?

    Scoot commute

    Travelling to work by scooter is faster than walking and less sweaty than cycling, so why aren’t we all doing it?
    Paul Robeson: The story of how an American icon was driven to death to be told in film

    The Paul Robeson story

    How an American icon was driven to death to be told in film
    10 best satellite navigation systems

    Never get lost again: 10 best satellite navigation systems

    Keep your vehicle going in the right direction with a clever device
    Paul Scholes column: England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil

    Paul Scholes column

    England must learn to keep possession and dictate games before they are exposed by the likes of Germany and Brazil
    Michael Dawson: I’ll thank Spurs after we win says defender as he prepares to return with Hull

    Michael Dawson: I’ll thank Spurs after we win

    Hull defender faces his struggling former club on Sunday ready to show what they are missing. But he says he will always be grateful to Tottenham
    Frank Warren column: Dr Wu has big plans for the professionals yet he should stick to the amateur game

    Frank Warren column

    Dr Wu has big plans for the professionals yet he should stick to the amateur game
    Synagogue attack: Fear unites both sides of Jerusalem as minister warns restoring quiet could take 'months'

    Terror unites Jerusalem after synagogue attack

    Rising violence and increased police patrols have left residents of all faiths looking over their shoulders
    Medecins sans Frontieres: The Ebola crisis has them in the headlines, but their work goes far beyond West Africa

    'How do you carry on? You have to...'

    The Ebola crisis has Medecins sans Frontieres in the headlines, but their work goes far beyond West Africa
    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Isis extends its deadly reach with suicide bombing in Kurdish capital

    Residents in what was Iraq’s safest city fear an increase in jihadist attacks, reports Patrick Cockburn
    Underwater photography competition winners 2014 - in pictures

    'Mysterious and inviting' shot of diver wins photography competition

    Stunning image of cenote in Mexico takes top prize
    Sir John Major: Negative West End portrayals of politicians put people off voting

    Sir John Major hits out at theatres

    Negative West End portrayals of politicians put people off voting
    Kicking Barbie's butt: How the growth of 3D printing enabled me to make an army of custom-made figurines

    Kicking Barbie's butt

    How the growth of 3D printing enabled toy-designer to make an army of custom-made figurines