What to do if you have an interest-only mortgage

Interest-only mortgages: what to do if your repayment plan isn’t clear

An interest-only mortgage is designed so that your monthly payments cover the interest, while the capital (the amount you borrowed) is intended to be repaid at a later date—often when the mortgage reaches maturity.

If you took out an interest-only deal because you expected to repay the capital using an investment, the sale of the property, or another plan, it’s important to review that plan well before the maturity date. The key issue isn’t that interest-only mortgages are “wrong”—it’s that the repayment outcome needs to be realistic and properly timed.

This guide explains the main options people consider when they are approaching maturity (or when they realise their original plan may not be enough).

Start with the facts: where you are now

Before deciding what to do, gather the information that will shape your choices:

• Your mortgage maturity date and whether any flexibility exists in your current contract.
• The outstanding capital you need to repay at maturity.
• Your current interest rate and how your payments are calculated.
• What you planned to use to repay the capital (e.g., savings, investments, sale proceeds, inheritance).
• How much you realistically expect to have at maturity and whether there may be a shortfall.

If you’re unsure about any of the above, ask your lender for a statement showing the expected position at maturity.

If you have a viable repayment plan, you may just need to check it

Many borrowers with interest-only mortgages are on track. If your plan is still realistic, the focus may be on confirming that:

• the plan’s timescale still matches the maturity date
• the value assumptions are sensible (especially for investments)
• you understand any charges or restrictions that could affect your ability to change course later

Even when you’re on track, it can be helpful to review your options so you’re not forced into a rushed decision.

Convert to repayment (capital and interest)

One common solution is to switch from interest-only to a repayment (capital and interest) basis.

With repayment, each month you pay both:

• interest on the loan
• a portion of the capital, so the mortgage is expected to be cleared by the end of the term

What to consider

• Affordability: repayments are usually higher than interest-only payments.
• Term length: extending the term can reduce the monthly payment, but may increase the total interest paid over the life of the mortgage.
• Whether the switch is available: lenders’ processes and product rules vary.

Extend your mortgage term

If you’re not ready to repay the capital yet, extending the term can give you more time to:

• sell the property
• grow savings or investments
• use other sources of funds

What to consider

• Extending the term may not reduce what you owe, but it can improve your timing.
• You may still need a credible plan for the eventual repayment of the capital.
• Any change to the term can affect the overall cost of the mortgage.

Make overpayments (where your mortgage allows)

Overpaying can help reduce the outstanding balance, which in turn reduces the capital you need to clear at maturity.

Some mortgages allow overpayments up to a limit each year without early repayment charges, while others may restrict how and when you can overpay.

Practical ways overpayments can help

• Regular extra payments can gradually reduce the capital.
• Lump-sum overpayments (if permitted) may be more efficient than small monthly increases.

What to consider

• Check your mortgage terms for overpayment limits and any early repayment charges.
• If you’re also saving/investing, consider whether it’s better to allocate funds to overpayments or to your repayment plan.

Sell your home and repay the mortgage

If there is equity in the property, selling may be a realistic route to repay the interest-only capital.

This option can be particularly relevant if:

• you’re planning to move anyway
• your repayment plan relies on the sale of the property and you’re now confident it can happen
• you want to downsize or move to a more affordable home

What to consider

• Estate agent and sale costs can affect the net proceeds.
• Timing risk: property sales can take longer than expected.
• Negative equity risk: if values fall, the proceeds may not cover the mortgage.

If you’re over 55: retirement interest-only and equity release

For borrowers aged over 55, there may be options that can help manage repayment without requiring monthly capital repayments in the same way as a standard interest-only mortgage.

Retirement interest-only mortgage

A retirement interest-only mortgage is structured so that the lender receives the capital when a qualifying event occurs, such as:

• the property is sold
• the borrower dies
• the borrower moves into long-term care

The monthly payment is typically designed to cover the interest.

Equity release

Equity release is another route that may allow you to access some of the property wealth to help repay an existing interest-only mortgage.

There are different types of equity release products, and they can work in different ways, for example:

• some allow interest to be rolled up rather than paid monthly
• others require monthly interest payments

What to consider

• Equity release involves a legal charge over the property.
• The cost can increase over time, especially where interest is rolled up.
• You should consider the impact on inheritance and long-term housing plans.
• Product features vary, so it’s important to understand the specific terms being offered.

Choosing the right option depends on your shortfall and your priorities

If you don’t have enough to repay the capital at maturity, the “best” solution usually depends on factors such as:

• whether you can afford higher monthly payments (e.g., switching to repayment)
• how much time you have left before maturity
• whether you can reduce the balance through overpayments
• whether selling is feasible and likely to complete on time
• your age and whether retirement/equity-release routes are appropriate

A sensible next step: review your position early

Interest-only mortgages can become stressful when maturity approaches and the repayment plan isn’t as strong as expected. The most constructive approach is to review your situation early, understand the options available, and choose a route that matches both your finances and your timeline.

If you’d like to explore the options in more detail, we can help you understand what may be possible based on your mortgage terms, your repayment plan, and your circumstances.

Useful guidance:

• MoneyHelper (general mortgage and debt guidance): https://www.moneyhelper.org.uk/en/money-troubles/debt/mortgage-arrears-and-missed-payments
• FCA (consumer information): https://www.fca.org.uk/consumers