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‘Don’t panic’: what to do if you can’t repay your interest-only mortgage

Your Money
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Your Money

Here are five options for concerned interest-only borrowers.

Interest-only mortgage borrowers have been warned by the regulator not to “bury their heads in the sand” after it was revealed hundreds of thousands will not be able to pay off their mortgage at the end of the term.

If you are worried about paying off your interest-only mortgage, don’t panic. The following tips may help:

Seek advice

Pick up the phone to an independent adviser. They will help you work through your finances and come up with a plan. Your lender may also be able to help but they will only provide a solution – they won’t be able to offer impartial advice suitable for your individual circumstances.


With interest rates so low, there is every chance you may have some extra disposable income which you could use to start overpaying on a regular basis. Paying an extra £25 a month can make a huge difference to a 15 year term, for example. Just double check whether your lender charges early repayment fees.

Switch to a repayment basis

Your existing lender should be able to arrange this with the minimum of fuss although there may be a small admin charge. Remember this will more than likely increase your monthly payments. For example, switching a £150,000 loan at 5% with 15 years remaining would increase the payment from £625 per month interest only to £1,186 per month on repayment.


You may be able to reduce your rate by remortgaging. Five-year fixed rates are available below 3% with 30% equity, and below 4% with 15% equity so this could help bring the costs down. It’s worth seeing if your current lender will offer something similar, but if they won’t, start shopping around.

Extend your term

Extending the term of your mortgage could help reduce costs. Continuing the above example, staying at 5% but switching to repayment over 20 years instead of 15 would give a new payment of £990 per month. Or moving to 3% over 20 years would bring it down to £832 per month – much closer to the original interest only payment.

Of course that’s based on switching the whole loan, which not everyone will have to do: the research out today suggests the vast majority of borrowers have some strategy in place to repay their mortgage but may face a shortfall in funds. So for most people only a partial switch to repayment would be needed. There are a number of online calculators to help you with the maths such as this one on the London & Country Mortgages website, which was built for endowment shortfalls but will work for any interest-only to repayment switch.