Mortgage guide
What Happens at the End of an Interest-Only Mortgage? Your Options Explained
When an interest-only mortgage reaches the end of its agreed term, the outstanding capital normally becomes due. If your repayment plan will not cover the balance, acting before the maturity date can give you more time to understand the routes that may be available.
What happens when an interest-only mortgage reaches the end of its term?
An interest-only mortgage works differently from a repayment mortgage. Your normal monthly mortgage payments cover the interest charged on the borrowing, but they do not automatically pay down the capital unless you separately make capital repayments.
That means the original mortgage balance, or whatever capital remains after any overpayments or lump-sum reductions, normally has to be repaid when the contractual mortgage term finishes.
If you originally borrowed £200,000 on an interest-only basis and made no capital repayments during the term, you could still have around £200,000 of capital to repay at maturity. The actual amount due will depend on your mortgage account and any capital payments already made.
This is why an interest-only mortgage normally needs a separate repayment plan. Depending on the lender and mortgage, that might involve savings, investments, other assets, sale of a property or another strategy the lender considers acceptable.
MoneyHelper explains that maintaining a credible repayment plan is the borrower's responsibility and recommends reviewing it rather than assuming the capital will somehow be covered at the end.
See MoneyHelper's guide to repaying an interest-only mortgage and the FCA's research on interest-only mortgages.
Is your mortgage deal ending, or is the mortgage term ending?
These two events are often confused, but they are not the same thing.
A fixed, tracker or discounted interest-rate period is finishing, but the underlying mortgage still has years left to run. You may be able to take another product with the existing lender or remortgage elsewhere.
The contractual borrowing period itself has reached maturity. On an interest-only mortgage, the remaining capital is normally due for repayment.
If your five-year fixed rate is ending but your 25-year mortgage has another 15 years remaining, that is primarily a product-expiry issue. If the full 25-year mortgage term is finishing, you are dealing with mortgage maturity and the outstanding capital becomes the central issue.
Before considering any new mortgage, check your latest statement or ask the lender to confirm both the product expiry date and the mortgage maturity date.
What if you cannot repay the capital in full?
Do not wait for the maturity date before raising the problem. MoneyHelper advises borrowers who cannot repay their interest-only capital to contact their lender as soon as possible, and FCA work on interest-only mortgages has repeatedly highlighted the value of early engagement.
Start by establishing the size of the problem rather than immediately choosing a new mortgage.
- Confirm the exact capital balance that will be due.
- Confirm the mortgage maturity date.
- Check the current value of every repayment vehicle you intended to use.
- Work out the expected shortfall, if any.
- Review your current income and likely retirement income if the new term could extend into retirement.
- Estimate the property's current value and your available equity.
- Ask your existing lender what options it is prepared to consider.
A shortfall does not automatically mean you must sell the property immediately, but neither does it mean another mortgage will automatically be available. The realistic options depend on your age, income, property, equity, credit position, intended repayment strategy and the criteria of the lender involved.
What are your options at the end of an interest-only mortgage?
There is no single solution for every borrower. The route that makes sense depends on why the capital is still outstanding and what your finances look like now.
| Possible route | When it may be relevant | Important consideration |
|---|---|---|
| Repay from your planned repayment vehicle | Your savings, investments or other accepted assets are sufficient. | Check values and access arrangements before the deadline rather than relying on an estimate. |
| Ask your current lender about extending the term | You need more time and the lender is prepared to consider a contract variation. | An extension can increase the total amount of interest paid and may require affordability assessment, particularly into retirement. |
| Move to a repayment mortgage | You have sufficient income to repay capital and interest over a new term. | Monthly payments are usually higher than interest-only because the capital is being repaid as well. |
| Remortgage onto another interest-only mortgage | You meet the new lender's criteria and have a repayment strategy it accepts. | A new lender is likely to examine affordability, equity and the repayment plan rather than simply extending the old arrangement. |
| Use a part-and-part mortgage | You can afford to repay some capital monthly but need part of the borrowing to remain interest-only. | The interest-only portion will still need its own acceptable repayment strategy. |
| Make a partial capital repayment | You have some of the required capital but not enough to repay everything. | Reducing the balance can change the loan-to-value and amount that needs refinancing, but a lender still has to accept the remaining case. |
| Sell or downsize | The property is intended to provide the repayment funds or ongoing borrowing is not suitable. | Allow realistic time for sale and associated costs rather than assuming completion will happen exactly at maturity. |
| Consider an appropriate later-life route | You are an older borrower and standard mortgage options are limited. | RIO and lifetime-mortgage products have different eligibility, costs and long-term implications and should be considered with appropriately qualified advice. |
Could your existing lender extend the term?
It can be worth speaking to the lender already holding the mortgage before assuming you need to move elsewhere. An extension or other variation may sometimes be considered, but it is not automatic.
FCA consumer guidance notes that extending a mortgage term can reduce the monthly payment but usually increases the total amount repaid over the longer period. If the proposed term extends beyond expected retirement age, the lender may need to consider affordability differently.
Could you switch to repayment?
Switching all or part of the borrowing to capital repayment reduces reliance on a future lump sum because each payment contributes towards repaying the debt. The key issue is whether the resulting monthly payment is affordable over the proposed term.
Could another interest-only mortgage work?
Potentially, but another lender will normally want more than evidence that you have successfully paid the interest so far. MoneyHelper notes that a new lender is likely to scrutinise both affordability and the repayment plan.
A future inheritance or hoped-for rise in the property's value should not simply be assumed to be an acceptable repayment strategy. What is accepted varies by lender.
What about retirement interest-only mortgages?
A retirement interest-only mortgage, often called a RIO mortgage, may be relevant for some older borrowers. You continue paying the interest, while the capital is generally repaid when a specified later-life event occurs, such as sale of the home.
RIO mortgages are not simply a standard interest-only mortgage with a longer term. Lender eligibility and affordability requirements apply, and later-life borrowing should be considered carefully alongside other options.
Can you remortgage at the end of an interest-only mortgage?
Yes, remortgaging can be possible, but approval is not guaranteed simply because the existing mortgage has been maintained successfully.
A prospective lender is likely to assess the application using its current criteria. Depending on the mortgage type, factors can include:
- the outstanding mortgage balance
- the property's current value and resulting loan-to-value
- your income and existing financial commitments
- your age at application and at the end of the proposed new term
- your expected income during retirement, where relevant
- your credit history
- the property type and intended use
- whether the new borrowing will be repayment, interest-only or part-and-part
- the repayment strategy proposed for any interest-only portion
Compare the total cost rather than looking only at the new interest rate. Depending on the case, valuation costs, legal work, product fees, broker fees and any charges connected with the existing mortgage can affect whether switching is worthwhile.
The assessment is different from an owner-occupied residential mortgage because rental income, property type, borrower structure and lender rental calculations can become central. Landlords can also read Lockwell's buy-to-let remortgage guide.
What if your interest-only mortgage has already reached its maturity date?
Contact the lender promptly rather than ignoring letters or waiting for the situation to resolve itself. Ask for an up-to-date statement showing the capital due and ask what process the lender expects you to follow.
Explain your circumstances clearly, including any repayment funds you do have, whether a property sale is in progress, whether you are exploring refinancing and any change in circumstances that affects the original repayment plan.
The FCA's work with mortgage lenders specifically considers customers who cannot repay the capital at maturity and notes that possible solutions should take account of the customer's individual circumstances. That does not mean a lender is obliged to offer a particular extension or product, so engaging early remains important.
Once the full mortgage term has ended, the remaining capital is contractually due. A refinance application started after maturity can therefore be a much more urgent situation than an ordinary product switch.
What if your repayment vehicle has a shortfall?
A repayment vehicle can underperform. Investments can rise or fall, savings may be lower than planned, or a property intended for sale may not produce the expected amount.
Start by calculating the gap between the capital due and the money realistically available. For example, if £180,000 is due but your usable repayment funds are currently worth £125,000, the issue to solve is a £55,000 shortfall rather than the original £180,000 mortgage.
Possible responses might involve combining more than one route: making a partial repayment, restructuring the remaining borrowing, increasing regular capital payments before maturity, agreeing another arrangement with the lender or selling an asset.
Avoid making investment decisions solely to solve the mortgage problem without understanding the tax, investment and financial-planning consequences. Where investments or pensions are involved, suitably qualified advice may be appropriate.
When should you start dealing with an interest-only mortgage that is ending?
As early as practical. The closer you get to maturity, the less time there is to deal with valuations, underwriting, legal work, investment shortfalls or a property sale.
FCA research has found that borrowers who engage with their lender earlier can have a wider range of potential repayment options than borrowers who wait until much later.
If your repayment plan is already showing a shortfall, there is little benefit in waiting for the official maturity notice before investigating it.
What information should you prepare before speaking to a lender or broker?
Having the key numbers ready makes it easier to understand whether you have a repayment problem, a refinancing problem or both.
- Current lender and mortgage account details.
- Current outstanding capital balance.
- Exact mortgage maturity date.
- Current interest rate and monthly payment.
- Details and current values of repayment vehicles.
- Estimated property value.
- Recent income information and, where relevant, expected retirement income.
- Details of other mortgages, loans and significant financial commitments.
- Whether you want to remain in the property, sell it or use it differently.
- The amount you could realistically contribute as a capital lump sum.
If the property is rented, also prepare the rent, tenancy details, ownership structure and information on any wider property portfolio because buy-to-let lenders assess cases differently.
Illustrative examples of how the options can differ
The following examples are hypothetical and are included only to show how different circumstances can lead to different questions. They are not customer case studies and do not indicate that a lender would approve any particular solution.
A partial repayment reduces the refinance required
A borrower has £180,000 due at maturity and £100,000 available from the repayment assets they had built up. Instead of trying to refinance the full original balance, they could investigate whether using the £100,000 to reduce the capital and applying for suitable borrowing for the remaining £80,000 is viable. Affordability and lender criteria would still apply.
The borrower asks the existing lender about more time
A borrower is still earning and expects to remain in work, but their repayment vehicle has not reached the required value. One question to raise with the existing lender is whether an extension or different repayment structure can be considered. The lender would decide what, if anything, it can offer and what affordability checks are required.
An older borrower compares staying with selling
An older homeowner wants to stay in the property but has insufficient capital to clear the mortgage. Rather than assuming a standard remortgage is the only route, they may need to compare options such as downsizing, a suitable RIO mortgage or other later-life lending. The costs, affordability requirements and long-term implications can be very different.
Common mistakes to avoid
Waiting until the final few weeks
A new mortgage, property sale or lender variation can take time. Waiting can turn a manageable planning issue into an urgent maturity problem.
Assuming another interest-only mortgage will be automatic
The new lender may have different age limits, affordability rules, loan-to-value requirements and acceptable repayment strategies.
Confusing a fixed-rate end date with mortgage maturity
Switching rates and repaying the full capital balance are different events. Confirm which deadline actually applies.
Relying on an unverified property value
If your plan depends on equity, remember that a lender's valuation may differ from an online estimate or your preferred sale price.
Looking only at monthly payments
Extending the term or remaining interest-only can keep monthly payments lower but may increase the amount of interest paid over time or leave capital to be dealt with later.
Is the deadline connected to an investment or property-finance refinance?
If your case falls within the property-finance areas Lockwell Finance supports, such as buy-to-let or investment property, start with the property value, outstanding balance, borrower structure and refinance deadline. For a regulated mortgage on your home, your existing lender should be an early point of contact and you may wish to seek advice from an appropriately FCA-authorised mortgage adviser.
Discuss your property financeFrequently asked questions
What happens if I cannot pay my interest-only mortgage at the end of the term?
Speak to your lender as soon as possible. The remaining capital is normally due at maturity, but your lender can explain what options it is prepared to consider based on your circumstances. Do not assume an extension or new mortgage will automatically be available.
Can I extend an interest-only mortgage when the term ends?
A lender may be prepared to consider a term extension, but this depends on its criteria and your circumstances. Extending the term generally means paying interest for longer, and affordability can become particularly important if the new term goes into retirement.
Can I remortgage an interest-only mortgage at the end of the term?
It can be possible. A new lender may assess your income, age, credit profile, property value, loan-to-value and the repayment strategy for any borrowing that remains interest-only.
Can I switch from interest-only to a repayment mortgage?
Potentially. A repayment mortgage pays down both capital and interest, so the monthly payment is normally higher than interest-only for the same balance and term. The lender will assess whether the new payment is affordable.
Can part of the mortgage stay interest-only?
Some mortgages can be structured on a part-repayment, part-interest-only basis. Any interest-only portion still requires an acceptable way of repaying the capital later, and product availability depends on lender criteria.
What happens if my endowment or investments will not cover the mortgage?
Establish the likely shortfall, review the repayment assets and speak to the lender before maturity. Depending on your position, you may need to combine a partial capital repayment with another financing or repayment route.
Can I use my house sale to repay an interest-only mortgage?
Sale of the property can be a repayment route in some circumstances, but the timing and expected net sale proceeds matter. If this is your plan, discuss it with your lender and allow for selling costs and the possibility that the eventual sale price differs from your estimate.
Is a retirement interest-only mortgage the same as a normal interest-only mortgage?
No. A RIO mortgage is a later-life mortgage with its own eligibility and affordability requirements. Interest is usually paid monthly and the capital is generally repaid following a specified later-life event, often sale of the property.
Is the end of my fixed rate the same as the end of my mortgage?
Not necessarily. A fixed-rate deal can end years before the underlying mortgage term. Check both your product expiry date and the mortgage maturity date so you know whether you are reviewing a rate or facing repayment of the capital.
Plan around the capital balance, not just the next interest rate
The most important fact about an interest-only mortgage reaching maturity is that the capital has not automatically disappeared through your monthly payments. Establish exactly what is due, compare it with the money available from your repayment plan and deal with any gap before the deadline where possible.
Remortgaging can be one route, but it is not the only route and it is not automatic. Depending on your circumstances, the answer may involve your existing lender, a different repayment structure, a partial capital payment, another suitable mortgage, a later-life option or sale of the property.
If you are concerned about a shortfall, contact your lender early. MoneyHelper also provides free guidance on interest-only mortgage repayment options.