No plans to repay capital by interest only homeowners

According to a recent report many homeowners that have interest only mortgages rather than capital and interest mortgages have no plans in place to repay the capital on their loans. There are thought to be nearly three million people that have interest only mortgages in the UK, and a massive 45 percent of these are thought to have no plans in place to enable them to repay their principle loan at the end of the mortgage term.

With an interest only mortgage the borrower makes monthly repayments, which go towards only the interest that is owed on the loan. The actual principal loan balance remains untouched until the end of the mortgage loan term, at which time it should be paid off in full.

In order to manage this borrowers are meant to have a sideline investment running alongside the mortgages, which will hopefully grow to a level that will provide them with the money that they need to repay the principal loan balance at the end of the term.

Many had previously been counting on rising equity levels in their homes in order to pay off the balance at the end of the mortgage term, but with house prices falling this could prove to be a problems for many, who may be facing a severe drop in equity levels.

One official said: “A previously booming property market led many people to bank on being able sell their home, use the proceeds to pay off the mortgage, and still have enough left to buy another home. However, this strategy may have been overturned by current and predicted future falls in property prices.”