My interest only mortgage is ending: what are my options?

Talk to your current lender

Your lender is the first conversation, because only it can tell you what it will consider for your existing mortgage. What it decides is entirely at its discretion, so do not assume any particular outcome. Talking early gives you time to act on whatever it says.

Extend the term

Extending the existing term with your current lender is sometimes possible, and where it works it is the simplest fix of all. The catch is that it is at the lender's discretion, and it postpones the problem rather than solving it. It is worth considering when what you need is time rather than money.

A retirement interest only mortgage

A retirement interest only mortgage (RIO) is designed for later life, typically from age 50 depending on the lender. You keep paying the interest each month, the balance stays level, and there is no fixed repayment term. The loan is repaid when you sell, refinance, move into long term care, or pass away.

It is assessed on affordability. As an indicative guide, lenders typically work to around 4.5 times your retirement income, or on a joint application 4.5 times the lower of the two survivor incomes. Your credit history can affect whether you qualify. Because the payments are required, your home is at risk of repossession if you do not keep them up. Our page on retirement interest only mortgages explains it in full.

A new interest only or repayment mortgage with a set term

Traditional lenders do still lend to older borrowers, typically from age 50, and some of their options run to age 80. These have a full affordability assessment of your income now and in the future, and a set term, and a lender may want to see how you will repay at the end of it. On a capital and repayment basis your monthly payment includes capital as well as interest, so the debt is actually cleared. As with any mortgage that requires payments, your home is at risk of repossession if you miss them.

This route is easy to overlook. Craig once assessed a case for a couple aged 63 who had asked for a lifetime mortgage after problems with earlier applications. At no charge to them, he found a traditional interest only mortgage on an eleven year term instead. A lifetime mortgage was not the right answer for them. Every case is different, and the outcome depended on their circumstances.

A lifetime mortgage

A lifetime mortgage is not assessed on your income. It is based mainly on your age, from 55, and your property value, and the existing mortgage is repaid from it on completion. No monthly payment is required, though you can choose to pay some or all of the interest.

The trade is that interest you do not pay is added to the balance and compounds, which reduces what you leave behind. This route has its own page, using equity release to clear an interest only mortgage, which goes through it properly.

Downsizing

Selling, buying somewhere smaller and using the difference to clear the mortgage releases capital without any new borrowing. No interest, no debt, nothing to repay later.

Against it: stamp duty, agents, solicitors and removals eat into the gain, and there may not be a suitable smaller home where you want to live.

Selling

Selling can clear the debt, but it means finding somewhere else to live. Some people reach the end of the term and find that selling looks like the only option left, when they would rather stay put. If that is you, talk to an adviser before you decide.

Paying part of it off

If you have savings, investments or a pension lump sum that would cover some of the balance, paying part of it off reduces what is left for any other route to deal with. Your mortgage terms set out whether any charges apply to paying part of it off. Before drawing on a pension, take advice from a pension specialist, because how and when you draw on it can have tax consequences. We can refer you to one.

What happens at the end of an interest only mortgage in the UK?

The original amount you borrowed falls due, because interest only payments do not reduce it. If the plan you had for repaying it has fallen short, you need another route, such as a term extension, a new mortgage, equity release or selling.

What if I am unable to pay off my interest only mortgage?

You are not out of options, but you do need to act. Keep up your agreed payments, talk to your lender early, and look at all the main routes, including the ones that do not depend on having the capital. The earlier you start, the more of those routes are still open.

Will my lender extend my interest only mortgage?

That is entirely your lender's decision. Extending the term is sometimes possible, and where it works it is the simplest fix, but it postpones the problem rather than solving it. Ask early, so you have time to look at other routes if the answer is no.

Can I get an interest only mortgage in my 60s?

Interest only borrowing in later life is available. Retirement interest only mortgages and interest only mortgages for older borrowers typically start from age 50, depending on the lender. Both are assessed on affordability, and your home is at risk of repossession if you do not keep up the payments.

Is equity release the answer to an interest only mortgage ending?

Sometimes. A lifetime mortgage is not income assessed, which is why it can work when income will not support a new mortgage, but the interest you do not pay is added to the balance and reduces what you leave behind. It is one route among several, and it should be compared with the others first.