Borrowers with an interest-only mortgage should act now

Published: 02/05/2013     Last Modified: 24/02/2016
Find out why borrowers with an interest-only mortgage need to check whether their current plan will repay all of their loan and steps they can take to make sure it does.

On 2 May 2013, we published findings showing that some borrowers with an interest-only mortgage may not be able to fully repay their loan at the end of the loan period.

But there are steps you can take to check your repayment plan is on track and, if it isn’t, to see what options are available to repay all of your loan when your interest-only mortgage ends.

Repayment and interest-only mortgages

Most homeowners have a repayment mortgage, where monthly payments go toward paying the interest on the loan and repaying the amount borrowed, which is known as the 'capital'. If you keep up with your monthly payments on a repayment mortgage you will have repaid all of the loan when your mortgage ends.

With an interest-only mortgage all of your monthly payment only goes toward paying the interest. This lowers the amount you have to pay each month but you will need a separate plan to repay the capital at the end of the loan period.

Make sure you can repay your mortgage

Many borrowers with an interest-only mortgage should be able to fully repay their loan when it is due for repayment.

However, we found that some borrowers – including some  with an interest-only mortgage due to be repaid before 2020 – need to act now to make sure they will be able to repay the loan.

If you have an interest-only mortgage you should check when your loan is due for repayment and how much you will owe when it does. You should then be able to work out how much you would have to save (or overpay) each month to fully repay your mortgage.

The Money Advice Service has a guide on how to calculate how much you have to save each month to fully repay the capital on your interest-only mortgage. This can be used to gauge how much you should save or overpay by, by comparing the amount you are paying on interest-only with the full repayment amount. Lenders will be contacting their borrowers over the coming months to prompt them into checking their plan for repayment is on track and considering the options available to them.

If you are concerned that you will not be able to save enough each month to fully repay your interest-only mortgage, perhaps because it is only a few years until the end of the loan period, you should speak to your lender about other possible options.

Further information

You can find out more about interest-only mortgages from the Money Advice Service.

If you want more information or free, unbiased help to work out your repayment options you can contact Citizens Advice or Age UK.

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External links

Money Advice Service on interest-only mortgages
Provides information and tools to help you repay your loan

Age UK
Provides life-enhancing services and support

Shelter
Guidance and information for to people in housing need