2nd May 2013
Hargreaves Lansdown’s head of financial planning Danny Cox has sent out a brief note about what to do if you face a short fall in your interest only mortgage repayment vehicles in the wake of today’s FCA paper.
He sets out six remedial options to consider as follows –
· Switch to a repayment mortgage
· Extend the mortgage/ remortgage
· If over age 55 use tax-free cash sum from pension fund
· Use ISA or other investments
· Overpay from income or bonuses
· Sell then downsize or rent
Cox adds: “The best way to ensure a mortgage is repaid at the end of the term is to opt for a repayment mortgage at outset. However switching to a repayment mortgage to cover a £50,000 shortfall by 2020 will be expensive and could increase monthly repayments by around £530 a month.
“If you saved £480 per month into a stocks and shares ISA this would grow to £50,000 over 7 years based on a 6% return after charges. Clearly this is a more risky approach than a switch to repayment.
“Using tax-free cash from your pension may look attractive however it may dent your retirement plans. If you extend your mortgage you also need to make sure you have sufficient life insurance and income protection.”