What happens after Interest Only Mortgage Repayment period expires?

[Papercut]

If a lender agrees to switch a person’s mortgage to an interest only option for a given period of 12 months or 24 months:

1)I realise that the option (if agreed to by the bank) is there to give the borrower a bit of breathing space or a temporary reprieve during what would hopefully be a temporary setback period, but what if their situation does not improve by the end of the agreed interest only period?

2)If, by the end of the period the borrower reverts to interest plus capital repayments (either because the bank insists they do or because their financial circumstances have improved), does the capital portion of the repayments increase to make up the difference of the capital that they did not pay when they were on interest only, or would it revert to what it used to be & the missed capital repayments added on to the end of the term of the mortgage?

 

[Brendan Burgess]

At the end of the period of 12 months, you will owe more money than you would otherwise have owed, because you have not paid off any capital.

If you want to pay your mortgage off within the same original total time period e.g. 20 years, then you will have to increase the monthly repayment.

If you want to keep the same repayment amount, then it will take longer to pay off the mortgage.

Generally banks will be flexible as long as the interest is being paid and as long as you are talking to them.

Brendan

 

[Papercut]

Thanks Brendan.