Paying off your mortgage

As well as ensuring your ongoing rental income is sufficient to meet your mortgage payments and other property costs in the future, it's also important to consider how you’ll eventually pay off your Buy to Let mortgage when you reach the end of your current mortgage term.

Following nationalisation, NRAM is closed to new lending and we cannot normally extend your existing mortgage term. This means that you will need to ensure you are in a position to pay off your loan in full at this point time. Although this date could seem a long way off, the steps you take now could make a big difference to your options in the future.

The actions that you need to consider will vary depending on the type of mortgage that you currently have:

Repayment mortgage

If you have a repayment mortgage, then as long as you stay on track with your monthly payments your mortgage will be completely paid-off at the end of your term, so you’ll eventually own your property outright.

If you do think you may start to struggle to make a payment, please contact us so we can try and help

Interest Only mortgage

If you have an Interest Only mortgage, your monthly payments only cover the interest on the current balance owed. Your payments are not reducing the balance of the loan you originally borrowed and you will need to pay the balance in full at the end of the term.

Following nationalisation, we are no longer able to extend mortgage terms for customers and your property may be repossessed if you do not pay the full amount on the date we agreed. You can also be taken to court to recover any additional shortfall if the sale price of your property does not cover the loan.

There are various ways you can prepare to pay back your original loan and minimise any shortfall, but you do need to have some kind of plan in place. If you do not have one, it's never too late to get started.

Here are some of the options you should consider as part of your plan:

Using savings or investments

If your plan is to pay off your mortgage using your own savings or investments (such as an endowment or pension) it is important that you review them at least once a year to make sure they’re on track. This is vital in the current economic climate – as interest rates remain low and stock market performance is generally sluggish. Otherwise, you could reach the end of your mortgage term and find yourself with less than you need.

If you’re planning to use an endowment or pension to pay off your loan, it’s important that you review your statements regularly. Your statement should show if there might be a shortfall in the amount you’re expecting. If this is the case, don’t worry, there are several ways you can plan to address this. Call us and we will talk you through your options.

Using savings or investments

If you plan to pay off your original loan by selling your investment property, you need to ensure all the sums add up. Timing can be crucial – so make sure you know when the right time is to sell. You must consider the effect any drop in the value of your property might have on the sale price you can achieve. House prices won’t necessarily rise during the remainder of your mortgage term and you could be forced to sell during a dip in the market. If you sell for less than you'd planned, you could be left with a shortfall on the amount you owe.

It could also take longer to sell your property than you anticipated so you need to keep an eye on the pace of the housing market in your area.

If you are planning to sell, talk to us about your plans. We can help make sure you’re fully prepared to get the most from your sale.

Remortgaging to another lender

If you do not want to sell your property and are planning to remortgage elsewhere, it’s important to remember that many mortgage lenders are now applying much stricter criteria for new Buy to Let mortgages. You may need to provide a larger deposit, have a greater level of equity or provide a higher level of rental cover relative to the amount you wish to borrow.

This could mean that your remortgage options in the future are much more limited and those deals that do exist may be more expensive than you expect.

To check what mortgage deals are available right now, you can use our online DealFinder tool to search the market. Alternatively you can speak to an independent mortgage advisor to discuss your options.

Protect yourself and increase your options

One way to help guard against being left with a shortfall at the end of your term, or potentially open up more remortgage options in the future, is to switch all, or part, of your mortgage from interest only to repayment basis.

Alternatively, if you can’t commit to a permanent increase in your monthly payments, another option is to consider making overpayments as and when you can afford to.

Please note: if you have a NRAM Commercial mortgage, please contact us, as additional costs or fees may apply.

Switch to a Repayment mortgage

With an Interest Only mortgage, your monthly payments only cover the interest on the current balance owed. Your payments are not reducing the balance of the loan you originally borrowed. However, you can opt to pay off the loan balance gradually, over the full term of your mortgage, rather than in a single payment at the end. You can do this by switching to a Repayment mortgage.

With a Repayment mortgage, as long as you stay on track with your monthly payments, your mortgage will be completely paid-off at the end of the term, so you will eventually own your property outright.

Switching to Repayment will increase your monthly payments, but the additional amount could be less than you think. Our Repayment Calculator will show you how much you would need to pay each month, or you can call us to discuss.

Please note: if you have a NRAM Commercial mortgage, please contact us, as additional costs or fees may apply.

Switch part of your mortgage to Repayment

If a full switch to a Repayment mortgage costs too much, then you may consider changing just part of your mortgage to Repayment, whilst keeping the remainder as interest only. This is called a Part and Part mortgage.

The increase in your monthly payments will be less than with a full switch to repayment, so this option could be more affordable. If your rental income allows, you can also increase the portion of your mortgage on repayment in the future and 'step up' your monthly payments to increase the amount of your loan that you will gradually be paying off.

With a Part and Part mortgage, whilst you will not pay off your entire loan over the term of your mortgage, you will reduce the balance you owe. This could help if you are facing a shortfall from an investment plan, or if you eventually sell your property in the future for less than you expect. Alternatively, if you are thinking of remortgaging to another lender, reducing your balance could be beneficial as this might help you increase the equity in your property and potentially give you more remortgage options.

Please contact us to discuss how Part and Part may work for you. We can then provide you with details of how much extra you would have to pay each month.

Make overpayments

Making overpayments can be a great way to improve your position. Each overpayment reduces your mortgage balance and therefore the interest you are charged over the term of your mortgage. Even small overpayments can add up and make a big difference to the total amount of interest that you will pay.

If you can't afford to make regular monthly overpayments, you can always just do this as and when you want to. Such as if you found yourself with a higher rental surplus, or spare cash following the sale of another property in your portfolio.

Use our online Overpayment Calculator to see the positive effect even a modest overpayment can have on your mortgage, or call us to start taking advantage now.

Please note: if you have a NRAM Commercial mortgage, please contact us, as additional costs or fees may apply.

Tell us your plans

However simple or detailed your repayment plan might be, it’s important that you get in touch to discuss this with us.  There are lots of ways we can help you develop your plan and keep it on track, both now and right through to the time your mortgage ends.

If you do not yet know how you might repay your loan, just contact us to let us know and we can guide you through the different options available.