I haven't got enough money to pay off my mortgage. What can I do?

admin
21 December 2015

Q

I am due to pay off my mortgage in March 2016 but I will be £15,000 short. My home is worth around £150,000 and the outstanding mortgage is £55,000. At the moment, I only have £40,000 to pay towards it.I am not sure of the best way forward. I’m 61 and in full-time employment. Should I remortgage or request an extension on my existing mortgage?
From
AL/Leicester

A

With time running out fast on the existing mortgage term, it’s essential that you take action now. Initially, it makes sense to alert your existing lender to the fact that you expect to face a shortfall at the end of the mortgage term.

That should hopefully allow you to explore the options on offer from the current lender.

It sounds as if you have a repayment vehicle alongside the mortgage, which is set to fall short of the original target.

This highlights the need for interest- only borrowers to keep their repayment strategy under review and ensure that the vehicle remains on track to meet the capital balance at the end of the term.

If funds can’t be found from elsewhere to supplement the repayment vehicle, then you will need to try and extend the borrowing term in order to deal with the outstanding loan.

Most lenders will limit the age to which they will lend to 70 or 75, which may limit the term they are prepared to offer.

The more limited the term, the higher the monthly payment will be when the remainder of the mortgage is placed on a repayment basis.

If the mortgage will extend beyond your retirement, lenders will ask for evidence that you can afford the mortgage on an ongoing basis.

Once you have established what the existing lender can offer, you can explore what is on offer elsewhere to see if switching to a different deal may offer better value.

David Hollingworth is a mortgage broker at London & Country Mortgages in Bath.