What Happens When Your Mortgage Terms Expire in the UK?

What Happens When Your Mortgage Terms Expire in the UK?

As the end of a mortgage term approaches, homeowners face critical decisions that can shape their financial future. In this article, we explore the challenges and options for homeowners when they reach the end of their mortgage term.

What is a Mortgage Term?

The mortgage term encompasses the entire duration over which a mortgage is to be repaid, typically spanning 25 to 30 years. Contrary to popular belief, it is not tied to the duration of a specific product, such as a fixed-rate deal, which may be shorter.

Once the term concludes, any remaining balance becomes immediately due, leaving homeowners with a handful of options:

  1. Sell the property
  2. Remortgage
  3. Face legal action for an end of term mortgage repossession

The first two options are clearly the most preferable. Homeowners unable to perform either action could lose everything they have been paying for with a repossession.

We will examine the two different types of mortgages and explain what happens when the term ends.

Repayment Mortgages

The most common type of mortgage is a repayment mortgage. They enable borrowers to gradually pay off both the capital and interest each month. While this offers security, ensuring the mortgage will be fully repaid by the term’s end, it also entails higher monthly payments compared to interest-only mortgages.

When the mortgage term expires a repayment mortgage will be paid off in full. The homeowner will have paid off their commitment to the lender and will be able to live in that home mortgage-free.

Interest-Only Mortgages

Interest-only mortgages, where borrowers only pay the interest without reducing the capital balance, present unique challenges. The general idea for interest-only mortgages was to have lower monthly payments so borrowers could save or invest their money. Then, at the end of the mortgage term borrowers would pay the remaining balance in full and have an excess amount of money from their investments.

Unfortunately, many borrowers relied on financial investments to cover the balance at the end of the term, leading to widespread mis-selling of endowment policies. However, the performance of these policies often fell short, leaving borrowers with substantial shortfalls.

Exploring Solutions for Homeowners

In light of these challenges, homeowners are urged to explore various avenues:

  1. Claim Compensation: Those affected by endowment mis-selling should promptly contact their provider to lodge a complaint and explore compensation options, or speak to the FSCS to discuss your options.
  2. Consider Selling Assets: Selling the property or other assets, such as pension funds, can help cover the outstanding balance.
  3. Mortgage Modification: Requesting an extension of the mortgage term or switching to a repayment mortgage can provide relief, albeit with long-term financial implications.
  4. Seek Financial Advice: Professional financial advice can provide invaluable guidance in navigating complex mortgage issues and exploring viable solutions.

Dealing with Legal Action for an Expired Mortgage

In cases where borrowers face possession action due to defaulting on payments, timely action is crucial. While the court may grant extensions for property sale or refinancing, it typically requires evidence of concrete plans. Delaying action can result in costly court proceedings and diminished returns from property sales.

At Homekeep Solutions we help homeowners keep their home during repossession proceedings. We always recommend performing three actions when dealing with legal action due to an expired mortgage:

  1. Speak to your lender
  2. Discover your outstanding balance
  3. Call Homekeep Solutions

Our expert repossession advisors have seen it all, and although your situation may be unique we can help you stop repossession, fast.

Call us now if you need help.