Have you reached the end of your mortgage? From getting your documents in order to dealing with your extra monthly cash, we explain what happens next.
It’s the day many of us dream of… becoming mortgage-free. After years of being bound to monthly repayments, reaching the end of your mortgage term can often feel like a weight off your shoulders.
But what should you do when your mortgage comes to an end? We take a look.
What happens at the end of a repayment mortgage?
The most common type of mortgages is repayment mortgages. These will usually come to an end at the time you agreed at the beginning of the mortgage, which is typically around 25 years. There are exceptions to this though, such as:
- you’ve made overpayments on your mortgage
- you’ve fallen behind on payments or taken a mortgage holiday
- you extended the term of your mortgage
Whether you’ve shortened your term or lengthened it, your repayment mortgage will end whenever you’ve paid back 100% of the debt.
Once this happens, you’ll be the proud owner of all of the equity in your home. This means that you own 100% of your property and your mortgage lender will remove its charge against your property.
Whatever you choose to do with your new-found freedom is entirely up to you. Many people use the extra monthly money to contribute towards their pension; others might decide to move and downsize their property to release some cash.
What happens at the end of an interest-only mortgage?
Things are a bit different if you have an interest-only mortgage. Whilst interest-free mortgages are becoming less and less available, it’s still important to know what happens when your interest-only mortgage ends.
As the name suggests, you’ll only pay interest on the loan during the term. At the end of your agreed term, you’ll then have to repay the original amount you borrowed. While this can be cheaper every month, you’ll be faced with a big lump sum to pay off once the term has ended.
There are several ways you can afford to do this:
- with savings, investments or inheritance
- by getting a new mortgage deal
- by selling your house
What happens if I can’t repay my interest-only mortgage?
Since 2018, strategies have been put in place which give more support to interest-only mortgages customers. This means that mortgage providers should contact their customers to understand their repayment plans and help provide a solution if there is no plan in place.
If you’re nearing the end of your interest-only mortgage and you’re not sure you can pay it off, it’s important to speak to your lender as soon as possible. While this might seem daunting, a lender can’t force you to make a mortgage payment you can’t afford.
Instead, you could look into these options:
- switch to a repayment mortgage with your current lender
- switch part of your mortgage to repayment and leaving part on interest-only
- save or invest more money leading up to the end of term date
- sell your home – if your home has increased in value, the proceeds could be put towards the outstanding balance
What should I do when my mortgage ends?
There isn’t a lot you need to do when your mortgage comes to an end, but there might be some small tasks to complete – like requesting a copy of your Title Deeds.
If you bought your home after 1990, your home is probably registered with the Land Registry. This means that if you’re ever asked to prove that you own your home outright, you can request a copy of your deeds from the Land Registry.
If your home isn’t registered with the Land Registry, you can request a copy of your deeds from your mortgage lender for a small fee. It’s important to keep this in a safe place – you’ll need the deeds when it comes to registering your property.
After that, there’s not much you need to do, apart from making sure you have a good home and contents insurance policy in place.
Should I pay off my mortgage early?
Making overpayments on your mortgage could mean you can pay off your mortgage much quicker – and it can also significantly lower the amount of interest you pay overall. You could choose to either make one big lump payment or increase your regular monthly payments.
However, depending on your type of mortgage, you could be faced with an early repayment charge (ERC). Because shortening the length of your mortgage will mean you’ll pay less interest, some lenders will charge you with a penalty.
If the penalty wipes away what you save, it could be a better idea to put your cash into a savings account or an ISA instead. Take a look at your mortgage conditions – some offer you the flexibility to overpay or underpay.
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