I’m over 50 and my interest-only mortgage is ending soon; what should I do?

You may be starting to worry if you’re over 50 or 60 years old and nearing the end of your interest-only mortgage. You’re concerned that you won’t be able to pay off the amount you borrowed when your lender comes knocking expecting a single lump sum at the end of your mortgage term.

If, for example, you took out a £100k mortgage for 25 years, you’ll have been paying the interest on that sum each month. When those 25 years are up, you still have the £100k to repay. And yet for whatever reason, you are one of the tens of thousands of people who don’t have enough to pay it off.

Let me ease your mind.

Because there have been so many people in your situation in recent years, new regulations have steered more lenders towards producing new types of mortgages that will help people stay in their homes if they want to, without having to pay off the lump sum on their interest-only mortgage.

You should now, in fact, have several potential options to consider, including three types of mortgages designed for 50 or 55+ years, that probably didn’t exist when you took out your initial mortgage. 

But first, you might want to consider a couple of other options.

Sell your property or downsize

This may work for you if you have a lot of equity in your home and want to downsize to a smaller place that you can buy with cash from your sale. Or maybe you plan to move in with a relative and the sale of your house will comfortably cover the cost of your mortgage capital.

If, however, it suits your circumstances better to continue down the mortgage route, you have four main options. The last three outlined below are tailored specifically for the older folk among us.

1. Move to a capital and interest (repayment) mortgage

If you are on the more youthful side with a good, regular income, you may want to switch to a repayment mortgage (we call it Standard Capital & Interest). You would then be paying off the mortgage (capital) each month, as well as the interest. Obviously, this will be more expensive than an interest-only mortgage, and you will need to pass an affordability check.

At the end of the agreed term, however, you would owe nothing.

Clearly this option won’t suit everyone, so let’s look at the three main mortgages specifically designed for the older generations, working or retired. We’re talking 50 or 55 to 90+ years to end of life.

2. Term interest-only (TIO) mortgages (age 50+)

If you’re 50+ years, working or not, you could be eligible for a term interest-only (TIO) mortgage. On a TIO mortgage, you make monthly interest-only payments for the duration of your specified term (maximum 30 years), or until the eldest borrower’s 80th birthday.

Like the original interest-only mortgage you’ve been used to, you must show your lender that you have a repayment plan in place, to demonstrate that you will have enough funds to repay the mortgage capital at the end of the term. You could plan to do this by selling your house or with investments or other assets you may have.

3. Retirement interest-only (RIO) mortgages (age 50+)

Whether you are retired or working and 50+ years, a retirement interest-only (RIO) mortgage might suit you best.

A RIO mortgage has no end date, so there is no obligation to pay back the original loan at a set point in the future. You pay monthly interest and no capital.

The mortgage is ultimately paid off from the sale of your home, usually when either the borrower moves into long-term care or at end of life.

4. Equity release (a lifetime mortgage) (age 55+)

Like a RIO, a lifetime mortgage – a type of equity release –has no specified end date. Unlike a RIO, however, with most lifetime mortgages, you don’t pay the interest monthly. Instead, the interest rolls over and accumulates each month, and is added to the balance you owe at the end.

This compounds over the life of the loan, which could influence any thoughts you have on leaving an inheritance. The cost of a lifetime mortgage increases over time so, depending on how long you live, you could end up with little or no equity left in your property.