Interest only mortgage term ending

linda64

I am 63 divorced and my interest only mortgage terminates soon . My mortgage is £620000 the property is now worth 1.1 million. I can't afford to pay off the mortgage. Can I use the equity to pay off the mortgage what are the implications 

MattMattMattUK

linda64 said:

I am 63 divorced and my interest only mortgage terminates soon . My mortgage is £620000 the property is now worth 1.1 million. I can't afford to pay off the mortgage. Can I use the equity to pay off the mortgage what are the implications 

How would that even work? For starters you have £620k of debt and £480k of equity, so the numbers do not add up, secondly if you borrowed from the equity then it would just be shuffling debt around. You could try to get a lifetime mortgage/equity release, but I doubt you own a high enough percentage of thr property to be able to do that.

What was your plan to pay off the £620k when it fell due? Your only real option is to sell the property and buy somewhere you can afford.

Keep_pedalling

You could if you seriously downsized. Do you have any other assets? 

ACG

You might be able to remortgage on to some sort of retirement interest only (RIO) mortgage. It would be based on your pension income, but that is a pretty sizeable mortgage so you would need a good retirement income. 

If there is an option of paying down the mortgage in part, you may be able to get a RIO mortgage for the difference. 

There is also lifetime/equity release mortgage, but I think (I am not qualified to do these) you can generally get around 25% + 1% for each year over 55 so in your case 25% + 8% (33% LTV) which would only get you to around £350k so still quite a bit shortfall from what you have. 

If none of the above are options, I think you might be look at downsizing as your only real option. 

Speak to a broker or 2. Your circumstances as a whole might give offer different options. 

poseidon1

linda64 said:

I am 63 divorced and my interest only mortgage terminates soon . My mortgage is £620000 the property is now worth 1.1 million. I can't afford to pay off the mortgage. Can I use the equity to pay off the mortgage what are the implications 

Seems to me you will need to psychologically prepare yourself to substantially downsize to a much cheaper property unless your guranteed retirement income is approaching 6 figures for RIO mortgage purposes. 

A straightforward equity release mortgage is a non starter as indicated by MattMattMattUK.

You say you are divorced, I take it the financial settlement did not include access to any potential pension benefits your ex husband may have accrued?

MWT

linda64 said:

Can I use the equity to pay off the mortgage what are the implications 

As ACG has said, you will not be able to raise enough from equity release to pay off the mortgage, and it does have to be paid off in full when using equity release.

Similarly you cannot combine equity release with a RIO mortgage, it is one or the other, and you'd need a considerable amount of guaranteed income in retirement to get a RIO mortgage of that size.

I don't see a solution that leaves you in the current property if you can't justify a RIO mortgage.

Definitely talk to a broker but also consider that if you look at down-sizing with the remaining equity, you can use a RIO or Lifetime Mortgage/Equity Release product when you make that purchase so it could give you more options on your new property choice. 

Ayr_Rage

Sell up and move, there are plenty of areas in the UK where £400,000 will get you a very good property.

silvercar

I would have thought the equity release mortgage is being used to clear the mortgage, so the question is whether you can obtain an equity release mortgage that is so large. Given the mortgage will be cleared, the LTV would be 56%. I don’t know if ER would give a 63yr old 56% or not. 

Is your ex still on the mortgage? If not, it suggests you are a high earner, many lenders will continue a mortgage to 75 or even 80, so a broker may be able to help you find a mortgage. Though a repayment mortgage over 12 years may have eye watering monthly repayments. If your ex is on the mortgage, maybe he would want to remove his name and pass along some ££££ in return. If that is enough to get yourself a mortgage, it could work out.

QrizB

OP was still married in August last year, and at that time had a £250k flat to sell:

https://forums.moneysavingexpert.com/discussion/6547627/capital-gains-tax-in-scotland

One might have thought that the problem of paying off the mortgage would have been considered as part of the financial settlement during their recent divorce?

MWT

silvercar said:

I would have thought the equity release mortgage is being used to clear the mortgage, so the question is whether you can obtain an equity release mortgage that is so large. Given the mortgage will be cleared, the LTV would be 56%. I don’t know if ER would give a 63yr old 56% or not. 

No, that is not going to happen, might get close if the OP was 80+, but at 63 it will be a lot lower as ACG suggested earlier. 

There can be exceptions if the OP has been diagnosed with a life-limiting condition depending upon the prognosis.