What happens at end of interest only mortgage

heretolearn_2

What happens at the end of an interest only mortgage if there is nothing in place to pay off the capital?

Found out a friend is doing this and doesn't know what then happens - he's not too bothered as his mortgage is cheaper than local rents so that's how he's looking at it. But I think he needs to start making some plans?

There's another 8 years left on 20 year mortgage. If he doesn't pay off the capital what happens to the house? Who will it belong to? The mortgage lender? Will the house be sold by them and he gets to keep any equity? I can't get my head round that bit :cool:

opinions4u

He should do something NOW to ensure the debt is repaid. Overpayments being the most likely step to achieve this.

Ultimately, the contractual term is the end of the mortgage. If he doesn't give back the money borrowed at that time the lender can push for repossession. While any equity left after sale and expenses will belong to your friend, a lender enforced sale will almost certainly reduce this.

Some lenders will be prepared to extend the term. But they don't have to and even if they will today there's no guarantee that they will do in 2020.

The other option for your friend is to sell up in the next 8 years and downsize or rent.

Time to get his brain in to gear now though. The longer he leaves it the bigger the problem is going to be.