Openwork encourages borrowers to switch to repayment mortgages
June 26, 2010
Mortgage introducer Openwork has launched a new campaign aimed at trying to get homeowners that are currently on interest only mortgages to switch to capital and interest mortgages, also known as repayment mortgages. This comes after a number of lenders decided to crackdown on interest only mortgage loans, which are far higher risk than repayment mortgages.
With interest only mortgages the repayments made by the borrower cover only the interest on the loan over the mortgage term, which means that at the end of the term the borrower has to find the money to pay off the actual loan balance. For this reason the borrower is meant to make provisions, such as a sideline investment, to ensure that the actual loan amount can be raised by the end of the mortgage term.
Officials from Openwork are concerned that many borrowers with interest only deals do not have any adequate investment in place to ensure that this could be done, and is working with its key lenders, which include many big name lenders, to find a way to make it easy and affordable for borrowers to switch to a repayment mortgage.
Lenders that are involved in the scheme with Openwork include Nationwide, Halifax, C&G, Scottish Widows, Lloyds TSB Scotland and Woolwich.
An official from Openwork said: “At least 20 per cent of UK borrowers have an interest-only mortgage and FSA figures show the vast majority of them do not have a suitable repayment vehicle in place to pay the total outstanding debt. That is a huge concern to borrowers and lenders alike. We believe this campaign is a win-win for all concerned. It helps de-risk banks’ loan portfolios while confirming clients are on track - or helping them to get on track - to repay their loan in full.”
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