What Happens When Your Interest-Only Mortgage Ends?

As the end of your interest-only mortgage term looms, it’s normal to feel a bit unsure about what happens next.

Will you need to repay the entire loan at once? Should you extend the term or remortgage? Or are there other options if you’re not ready for a big payment?

These are questions many homeowners are asking. In fact, about 46% of borrowers may struggle to repay the capital when their interest-only mortgage ends. 

With many mortgages maturing in 2031 and 2032, it’s  important to start planning now.

In this guide, you’ll learn about the different options available to you when your interest-only mortgage ends. 

We’ll cover everything from tips on what to do if you can’t repay the loan to how to make the best decision for your situation.

What Happens When an Interest-Only Mortgage Ends?

When your interest-only mortgage term comes to an end, it means you need to repay the entire loan amount in one go.

Most lenders will start sending you friendly reminders about a year before the end date. They’ll keep nudging you with updates at six months, and again just before the final day arrives. 

This gives you plenty of time to plan your next move.

What If I Can’t Repay the Loan?

If you don’t have a large sum of cash or your original repayment plan hasn’t worked out as expected, don’t worry. You have several options:

Extend the Mortgage Term

Your lender might let you stretch out your mortgage. This means you’ll have more time to pay it off. Be prepared for extra paperwork and a financial check-up. 

Extending the term can make your monthly payments smaller, but it’s not guaranteed. 

Talk to your lender early to see if it’s an option.

Remortgage

If extending your mortgage isn’t an option, remortgaging could be a good move. 

This means changing to a new mortgage deal, maybe with a different lender, to get better terms or even switch to a repayment mortgage. It’s a great way to get a lower interest rate or change your monthly payments. 

Remember, your credit score and financial situation will affect what deals you can get. Don’t forget to check for any fees or costs involved in switching lenders.

Equity Release

For those over 55, equity release could be a helpful option. This allows you to access the value of your home without having to sell it. 

However, it’s important to remember that it’s a loan that will eventually need to be repaid when you sell your house, move into care, or pass away. 

While it sounds serious, it’s worth considering if you’re short on cash.

Pension Pot

If you’re over 55, dipping into your pension could help pay off your mortgage. You can withdraw up to 25% of your pension pot tax-free, which might be enough to clear the debt. 

However, think carefully before using this option. 

You’ll need those savings for retirement, so don’t leave yourself short later on. It’s wise to speak with a financial advisor to see if this approach fits your long-term plans.

Retirement Interest-Only (RIO) Mortgage

A RIO mortgage is for older people who want to stay in their home without paying back the loan right away. You’ll still pay interest, but there’s no set end date.

The loan is repaid when you sell your home, go into a care home, or die. It’s a good option if your income is lower in retirement but you want to keep making payments. 

To get one, you’ll need to show you can afford the interest payments, and the application is usually easier than a regular mortgage.

Switch to Repayment Mortgages

Switching to a repayment mortgage means changing your interest-only loan to one where you pay both interest and part of the loan each month. 

This is a good way to make sure your mortgage is fully paid off by the end of the term. But, your monthly payments will be higher, so make sure you can afford them. 

This option is good if your financial situation is better, so you can handle higher payments and reduce your debt. Check with your lender about any fees or rules before switching.

Will My Lender Repossess If I Can’t Repay the Full Loan?

The big, scary word: repossession. 

It’s every homeowner’s nightmare, but it doesn’t have to be yours. 

Repossession is a last resort for lenders, and they’d much rather work with you to find a solution. 

If you’re proactive and speak to your lender early, you can avoid this drastic outcome.

If things really aren’t looking good and you can’t come up with a repayment plan, selling your home voluntarily might be a better option. It’s not ideal, but it beats having your home repossessed and losing control over the process.

What If I Want to Pay Off Early?

Got some extra cash burning a hole in your pocket? You might be tempted to pay off your mortgage early. That’s great news, but before you get too excited, check with your lender. 

Some mortgages come with early repayment charges (ERCs), especially if you’re on a fixed-rate deal. This could be a percentage of your remaining loan balance—ouch!

Overpayments – A Good Idea?

Making extra payments on an interest-only mortgage can be tricky. Unlike repayment mortgages, extra money usually just reduces future interest payments. 

This means your loan balance stays the same, and so does the value of your home.

But here’s the good news: some lenders will let you direct those overpayments towards the capital if you make special arrangements.

This could help you clear the loan faster and build equity more quickly. It’s worth having a chat with your lender to see if this is an option.

Another option is to put extra money into a savings account, like an ISA or pension, if it allows. This can help you pay off the loan earlier. 

Talk to your mortgage advisor to see if this fits your plan.

Want to see how overpayments could work for you? Try using a mortgage overpayments calculator to get an idea of how much you could save. 

It’s a handy tool for figuring out the impact of making a one-off lump sum, regular monthly payments, or both.

Were You Mis-sold an Interest-Only Mortgage?

If you think you weren’t properly informed or were given bad advice when you took out your mortgage, you might have a case of mis-selling on your hands. But don’t panic.

Start by reaching out to your lender and explaining your concerns. They might be able to adjust your mortgage terms to make repayments easier.

If they’re not willing to help, you can escalate things to the Financial Ombudsman Service. They’ll look at your situation and decide if you were mis-sold the mortgage. 

If they find that’s the case, they’ll push your lender to offer a solution that works for you.

Taking action sooner rather than later is key.

Stuck in Negative Equity? Here’s What You Can Do

Negative equity happens when your mortgage debt is higher than your property’s current market value. 

It’s a tricky spot to be in, but don’t worry—you’ve got options.

The first thing to consider is whether extending your mortgage term is possible. This could give you a bit of breathing space, spreading your payments over a longer period and waiting for property prices to hopefully rise.

It’s always a good idea to chat with a good broker who can walk you through your choices and see what’s best for your situation.

The Bottom Line

When your interest-only mortgage term ends, it’s natural to worry about repaying the full loan amount. 

It can feel like a lot to handle, but don’t panic—there are options to help you manage. 

Taking action early is the best way to avoid problems and stay in control.

A mortgage broker can be a big help:

• They explain your options in simple terms.
• They have access to many lenders, so they can find the best deals for you.
• They do the paperwork and negotiate, saving you time and effort.
• They can help you change your mortgage or get better terms, so you don’t have to worry at the end of your mortgage.

If you’re looking to save time and avoid stress, get in touch with us. We’ll connect you with a reliable broker who can help you find the right solution for your mortgage needs.