Paying off your mortgage

As well as planning ahead to ensure you can meet your mortgage payments in the future, it's also important to consider how you’ll eventually pay-off your mortgage when you reach the end of your current mortgage term.

Following nationalisation, NRAM is closed to new lending and we cannot normally extend your existing mortgage term. This means that you will need to ensure you are in a position to pay off your loan in full at this point time. Although this date could seem a long way off, the steps you take now could make a big difference to your options in the future.

The actions that you need to consider will vary depending on the type of mortgage that you currently have:

Repayment mortgage

If you have a Repayment mortgage, then as long as you stay on track with your monthly payments, your mortgage will be completely paid-off at the end of your term, so you’ll eventually own your home outright.

If you do think you may start to struggle to make a payment, please contact us so we can try and help.

Interest Only mortgage

If you have an Interest Only mortgage, your monthly payments only cover the interest on the current balance owed. Your payments are not reducing the balance of the loan you originally borrowed and you will need to pay the balance in full at the end of the term.

Your home may be repossessed if you do not pay the full amount on the date we agreed. You can also be taken to court to recover any additional shortfall if the sale price of your property does not cover the loan.

There are various ways you can prepare to pay back your original loan and minimise any shortfall, but you do need to have some kind of plan in place. If you do not have one, it's never too late to get started.

Here are some of the options you should consider as part of your plan:

Using savings or investments

If your plan is to pay off your mortgage using savings or investments (such as an endowment or pension) it is important that you review them at least once a year to make sure they’re on track. This is vital in the current economic climate – as interest rates remain low and stock market performance is generally sluggish. Otherwise, you could reach the end of your mortgage term and find yourself with less than you need.

If you’re planning to use an endowment or pension to pay off your loan, it’s important that you review your statements regularly. Your statement should show if there might be a shortfall in the amount you’re expecting. If this is the case, don’t worry, there are several ways you can plan to address this. Call us and we will talk you through your options.

Selling your home

If you plan to pay off your original loan by selling your home, you need to ensure all the sums add up. Make sure you know when the right time is for you to sell and what financial situation you will need to be in to secure your next property. This could mean buying another house or moving into rented accommodation.

You must consider the effect any drop in the value of your property might have on the sale price you can achieve. House prices won’t necessarily rise during the remainder of your mortgage term and you could be forced to sell during a dip in the market. If you sell for less than you planned, you could be left with a shortfall on the amount you owe.

It could also take longer to sell your property than you anticipated so you need to keep an eye on the pace of the housing market in your area.

If you are planning to sell, talk to us about your plans. We can help make sure you’re fully prepared to get the most from your sale and are in the best place possible to buy another property or move into rented accommodation.

Remortgaging to another lender

If you do not want to sell your home and are planning to remortgage elsewhere, it’s important to remember that many banks and building societies are now applying much stricter criteria for new lending, meaning some types of mortgage are now much harder to come by. This is especially true at present for Interest Only mortgages, but there are also relatively few deals available at a higher 'loan to value', that is where a borrower only has a small deposit.

Depending on your financial situation and the amount of equity available in your property, this could mean that your remortgage options in the future are much more limited. Those deals that do exist may also be more expensive than you expect.

To check what mortgage deals are available right now, you can use our online DealFinder tool to search the market. Alternatively you can speak to an independent mortgage advisor to discuss your options.

Protect yourself and increase your options

One way to help guard against being left with a shortfall at the end of your term, or potentially open up more remortgage options in the future, is to switch all, or part, of your mortgage from interest only to repayment basis. 

Alternatively, if you can’t commit to a permanent increase in your monthly payments, another option is to consider making overpayments as and when you can afford to.

Switch to a Repayment mortgage

With an Interest Only mortgage, your monthly payments only cover the interest on the current balance owed. Your payments are not reducing the balance of the loan you originally borrowed. However, you can opt to pay off the loan balance gradually, over the full term of your mortgage, rather than in a single payment at the end. You can do this by switching to a Repayment mortgage.

With a Repayment mortgage, as long as you stay on track with your monthly payments your mortgage will be completely paid-off at the end of the term, so you will eventually own your property outright.

Switching to Repayment will increase your monthly payments, but the additional amount could be less than you think. Our Repayment Calculator will show you how much you would need to pay each month, or you can call us to discuss.

Switch Part Of Your Mortgage To Repayment

If a full switch to a Repayment mortgage costs too much, then you may consider changing just part of your mortgage to Repayment, whilst keeping the remainder as interest only. This is called a Part and Part mortgage.

The increase in your monthly payments will be less than with a full switch to repayment, so this option could be more affordable. And if your financial situation improves in the future, you can always increase the portion of your mortgage on repayment, and 'step up' your monthly payments to increase the amount of your loan that you will gradually be paying off.

With a Part and Part mortgage, whilst you will not pay off your entire loan over the term of your mortgage, you will reduce the balance you owe. This could help if you are facing a shortfall from your savings or investment plan, or if you eventually sell your property in the future for less than you expect. Alternatively, if you are thinking of remortgaging to another lender, reducing your balance could be beneficial as this might help you increase the equity in your property and potentially give you more remortgage options.

Please contact us to discuss how Part and Part may work for you. We can then provide you with details of how much extra you would have to pay each month.

Make Overpayments

Making overpayments can be a great way to improve your financial position. Each overpayment reduces your mortgage balance and therefore the interest you are charged over the term of your mortgage. Even small overpayments can add up and make a big difference to the total amount of interest that you will pay.

If you can't afford to make regular monthly overpayments, you can always just do this as and when you want to. For example in those situations when you might find yourself with surplus cash, an extra bonus or some spare savings.

Use our online Overpayment Calculator to see the positive effect even a modest overpayment can have on your mortgage, or call us to start taking advantage now.

Tell Us Your Plans

However simple or detailed your repayment plan might be, it’s important that you get in touch to discuss this with us.  There are lots of ways we can help you develop your plan and keep it on track, both now and right through to the time your mortgage ends.

If you do not yet know how you might repay your loan, just contact us to let us know and we can guide you through the different options available.

Lifetime Mortgages

If you have a Lifetime mortgage, the loan you've borrowed does not need to be repaid until the point at which the last mortgage holder dies or moves into permanent long-term care.

However, you may want to pay off your Lifetime mortgage early because you are looking to sell your property or if you are remortgaging to get a better deal elsewhere. Alternatively, you may have a lump sum available and want to pay off your Lifetime mortgage so that you can include your home in your will.

If this is the case, please read the following information to help make the process as smooth as possible:

What Do I Need To Do To Pay Off My Mortgage

If you want to pay off your Lifetime mortgage early, you need to contact us to request a redemption statement. This statement will tell you how much you currently owe on your Lifetime mortgage as well as showing you any fees payable.

If you are selling your home you need to ensure that the sales proceeds are sufficient to pay off the Lifetime mortgage, plus the rolled up interest. If the sale price of your property is insufficient to cover the amount you owe on your Lifetime mortgage, then you are responsible for covering this 'sales shortfall' from other funds.

What Fees Might I Have To Pay

When you pay off your Lifetime mortgage you may have to pay a redemption fee, which covers the maintenance and general administration of your Lifetime mortgage during its term. This fee is non-refundable and is added to the final amount that you owe us.

You may also have an Early Repayment Charge (ERC) on your Lifetime mortgage. This is usually a percentage of the amount being repaid and would normally be added to the final amount that you owe us.  However, we are currently waiving all ERCs until further notice, so you won't have to pay this fee at present, even if it would usually have applied.

You can find details of any fees payable on your original Lifetime mortgage offer. If you no longer have this document, you can contact us to find out more.

What If My Property Is Worth Less Than My Lifetime Mortgage

If you are in negative equity, you will still be legally responsible for the full amount of the Lifetime mortgage that is outstanding. You should contact us before you proceed with any sale if this is the case, so that we can discuss options with you and let you know how we will manage a sales shortfall in this instance.

Improve The Chances Of Repaying Your Lifetime Mortgage In The Future

With property prices falling or remaining depressed, you could find that your property is worth less in the future than you might expect. However you can reduce the amount you owe on your Lifetime mortgage by making a capital repayment. This could significantly reduce the amount of interest which rolls up on your Lifetime mortgage, meaning you could leave a greater amount as an inheritance.

You can make a capital repayment at any time, though please be aware that if you pay this in the first 5 years of your loan you could be subject to an Early Repayment Charge (ERC). However, we are currently waiving all ERCs until further notice, so you won't have to pay this fee at present, even if it would usually have applied.

To find out more about making a capital repayment on a Lifetime mortgage, please call us.