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Switching From an Interest Only to a Repayment Mortgage

Interested in switching your interest-only mortgage to a repayment but unsure where to start? Find all you need to know in our comprehensive guide.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 20, 2022

It’s not unusual to find borrowers with an interest-only mortgage looking for ways to transfer it to a repayment mortgage. This is because, while only paying the interest keeps your monthly payments down, it can be more costly in the long run, plus repayment vehicles can sometimes falter.

In this article we’ll explain why switching is actively encouraged by some lenders, how to go about transferring your mortgage if you decide it’s right for you, and why using a whole-of-market broker is your best route to the most affordable deal.

Can you change your mortgage from interest-only to repayment?

Yes! Many lenders prefer repayment mortgages for residential borrowers as they reduce your balance over time to give you and your provider added security.

Reducing your mortgage balance over the term of your loan will mean you will have paid all (or at least a fair chunk) of the original capital amount of your mortgage when your term ends. The sooner you make the switch, the longer your new loan will run and the easier it will be to reduce your balance.

With some repayment vehicles expected to fall short as interest-only mortgages expire, switching to repayment could be the difference between staying in your home or being forced to sell your property so as to pay off your mortgage from the proceeds.

Fortunately, it’s a pretty straightforward process and help is available if you get stuck.

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What are the implications of switching?

The chances are your monthly repayments will go up after you switch. With that said, if the value of your property has risen significantly since taking out your mortgage, your loan to value (LTV) could be lower which may mean you might benefit from a better interest rate on your new deal.

Remember, with interest-only, the capital balance of your original mortgage won’t have come down so the property value is crucial here.

If the value of your property has decreased, you could find it difficult to remortgage and will need to approach a specialist lender.

When considering whether to switch, think about other financial commitments that are expiring. For example, when your car finance is cleared, you may be able to put a few hundred pounds a month towards a repayment mortgage without increasing your total monthly outgoings.

You can get an idea of how your repayments will change using our calculator, which is set to repayment by default but includes the option to compare the results with interest-only figures.

calculator icon

Mortgage Repayment Calculator

Our mortgage repayment calculator can tell you how much your mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate, and our calculator will do the rest.


Enter the amount you're borrowing
£
2.5% is an average figure but the rate you get may vary
%
25 years is average, but most lenders offer longer and shorter terms
years

Monthly Repayments:

Interest Only:

Total amount paid at end of term:

Get started with an expert broker to find out how much they could help you save on your mortgage repayments.

Get Started

By switching to a repayment mortgage, you could reduce the overall cost of borrowing and build up more equity in your property as you bring down the balance of your mortgage. This will potentially give you more options with future remortgage opportunities.

Other ways to get out of an interest-only mortgage

There are several ways to get out of an interest-only mortgage and which is the right method for you will be determined by your individual circumstances.

If you’re looking to remortgage to a repayment mortgage, you’re advised to do so at the end of any  fixed term rate you are on so as to avoid early repayment fees.

Product transfer

It may be possible to do a simple product transfer with your existing provider and negotiate a better deal. While this may seem like the easiest option, it may not be the best choice. It’s worth speaking to your lender to ask what they can offer you, but it makes sense to compare it with what else is available to make sure you get the best deal.

This method often suits borrowers who do not meet eligibility requirements for a new mortgage due to a change in circumstances since taking out their loan.

Remortgaging with a new lender

If you are eligible to remortgage with your existing lender or a new provider, you may be able to benefit from a better rate of interest – particularly if your LTV has come down.

If affordability proves an issue, you could extend the term of your loan to make your monthly repayments more affordable. But bear in mind that this will increase the overall cost of borrowing.

In some cases, your existing lender will not allow you to remortgage on interest-only so you’ll need to explore other options before your fixed term ends.

Arranging an interest-only mortgage used to be a way to increase your loan amount. These days, providers usually calculate the maximum amount you can borrow on an interest-only mortgage using the same income multiples as for a repayment mortgage (typically 4.5 times salary but it is possible to borrow up to 6 times in some circumstances).

Remortgaging requires a full application so you will need to meet the lenders’ eligibility criteria and there are usually fees to pay. You can read up on the typical requirements in our guide to mortgage applications.

Switch to a part-and-part mortgage

If you don’t meet the criteria to switch your entire loan to a repayment mortgage, you can at least change part of it. This can be done with your current lender or a new provider.

A part-and-part mortgage is a hybrid of repayment and interest-only. It allows you to keep your monthly repayments manageable while reducing your balance and lessening the burden come the end of your interest-only term.

You could increase the repayment element of the loan when you come to remortgage again, further reducing your balance and long-term borrowing costs.

Savings and investments

If you have accrued enough in savings or other investments, this could be used to pay off your mortgage. If you’re considering this option, make sure you get independent financial advice to ensure it fits with your long term plans and doesn’t tie up too much of your cash.

Downsize

Selling up and moving to a cheaper property will release the equity in your current home. This could be used to:

  • Pay off your interest-only mortgage and buy a new place outright
  • Clear your current mortgage and put down a sizeable deposit that allows you to take out a repayment mortgage on your new property

Sell another property

If you have more than one property you may be able to sell one of them to raise the funds to get out of your interest-only mortgage.

Equity release

If you are aged 50 or over and have sufficient equity in your property, you may want to consider an equity release product. This could enable you to take a lump sum and pay off your existing interest-only loan with no monthly payments due until you pass away or move into long term care.

You should always seek an independent broker to ensure impartial advice. Whilst equity release suits some homeowners, it can be a very expensive way to borrow and can have a significant impact on the inheritance you leave behind.

How a broker can help you switch

Every penny counts when it comes to switching as your monthly payments are likely to increase. A whole of market broker will compare every deal in the UK to ensure you get the best one possible to meet your current and future financial goals.

What’s more, they will identify the best lenders according to your personal circumstances, so you won’t end up making multiple applications and harming your credit file.

Which lenders allow you to switch?

Most lenders will allow you to switch your mortgage type provided you match their risk profile and can prove the new rate is affordable. The key to making the right decision is assessing all options and calculating the short, medium and long term costs to make a fully informed decision.

The most important thing is to make sure you approach a provider that is sympathetic to your circumstances. Often, particularly if your situation has changed since taking out your current mortgage, switching to a more suitable lender can save you thousands over the term of your loan.

Get matched with a handpicked mortgage broker according to your circumstances

Our broker matching service will pair you up with a mortgage broker who has a proven track record of helping people in your situation switch to the best mortgage deal for them.

After a brief chat to gain an understanding of your financial circumstances and reasons you’re looking to switch, we will select the best broker to work with you. They will then scour the market, present you with all the options available and help you make the right decision.

Call now on 0808 189 2301 or enquire online to arrange a free no-obligation chat

FAQs

Can I switch from repayment to interest-only?

This is possible but it comes with greater risk and is therefore harder to get approved. If you think switching to interest-only either permanently or as a temporary measure is right for you, our guide will give you all the information you need.

Can I switch if I have bad credit?

Bad credit won’t necessarily stop you switching but, as your application will be treated like any other mortgage, you will have a smaller pool of lenders to choose from. Those specialist lenders that will consider an application will want to delve into your credit history as part of their risk assessment.

Can I switch my buy-to-let mortgage to repayment?

Yes, but there may be tax implications if your profits increase. If circumstances change and you choose to move into your buy-to-let property, switching may be your best option. An independent mortgage broker will assess your entire portfolio and help you decide on your best move.

Ask us a question

We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in switching from interest only to a repayment mortgage

Ask us a question and we'll get the best expert to help.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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