Mortgage Shortfall: can’t avoid mortgage shortfall?

Firstly, when your investment pays out at the end of the mortgage term, you should pay all the money into your mortgage to find out exactly how much you still owe the lender. You then need to look at how best to pay off the shortfall.

Talk to your lender as soon as possible. You may have a number of options available to you, some of which we list below.

■ Pay the shortfall from savings you have elsewhere.

■ Discuss a new repayment period with your lender to pay the shortfall. The quickest way may be to carry on with your previous monthly payment, although you may be able to agree a lower payment over a longer term. You should avoid extending the term beyond your retirement, unless you’re sure you can afford it.

In general, provided you keep up the new agreed monthly mortgage payments, you should not lose your home as a result of the shortfall.

■ You could sell your property to repay the mortgage, and buy a cheaper property so that you don’t need a mortgage.

■ If you have retired, or are about to retire, you could consider a lifetime mortgage. This is repaid from the proceeds of the sale of your home when you die or if you move out of it (perhaps into a care home) when the scheme will usually end.

But you should think very carefully about this as there are risks as well as benefits. The FSA factsheet Raising money from your home will tell you more about these and other options, but you should think about taking professional advice on this option.


FSA documents list a very good Example as below

Joe has come to the end of his mortgage term and the endowment company has paid him £35,000, but this is not enough to pay off his mortgage and he is left owing the mortgage lender £8,000. The interest rate on his mortgage is 4.4%. Joe could carry on with the monthly payment he has been making, which is £157.67. This would repay the remaining capital and interest in 4 years and 9 months, costing £8,987 in total, but the monthly amount is more than Joe wants to pay. Joe will retire in seven years. So he has agreed with his lender that he will repay the £8,000 over seven years and his monthly payment will be £110.66, which will cost him £9,295 in total.

Useful contacts

Call rates may vary

FSA Consumer Helpline

Tel: 0845 606 1234
Minicom/Textphone: 08457 300 104
Leafletline: 0845 456 1555
Website: www.fsa.gov.uk/consumer

To find a financial adviser
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Tel: 0800 085 3250
Website: www.unbiased.co.uk
(for a list of four independent financial advisers local to your area)

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