Moving home and remortgaging
With an interest only mortgage, if you redeem the mortgage, (for example when you move home or remortgage), you can carry over the accompanying savings plan to your new mortgage arrangement. It is not a good idea to stop an existing investment savings plan and start a new one.
The savings plan can be earmarked to pay off part of, or the entire new mortgage. If the new mortgage is for a larger amount than the existing one, you will need to choose a way of repaying the extra borrowing (this could be on a part repayment and part interest only basis).
|Mix of Both
(Part interest-only and part repayment)
|In the above example, the borrower
took out a £50,000 mortgage six years ago for a term of 25 years and set up a savings and
investment plan at the same time to pay off the debt when the plan matures.
Today he wants to borrow an extra £25,000 (because he is moving house and going "up market") and is going to repay the extra borrowing on the repayment method, and have that part finish at the same time as the savings plan matures and pays out. So the repayment part is set for a term of 19 years.
Typically this "part and part" method wins favour with someone who is a little concerned about the projected growth on their savings plan and its ability to pay out enough in the future. By taking the extra borrowing on the repayment method he is spreading the risk and, importantly, can go back to his lender in the future and increase the portion of his mortgage on repayment if his fears about his savings plans growth are realised.
Your home may be repossessed if you do not keep up repayments on your mortgage
Equity Release Mortgages