<h2>Changing to an interest-only mortgage<\/h2>\r\nIt is possible to transfer from a repayment to an interest-only mortgage and there are many circumstances where switching to an interest-only mortgage is a sensible option.\r\n\r\nHowever, there are a number of things to consider before making the change.\r\n\r\nIn this article, we look at the things you need to take into account, including:\r\n<ul>\r\n \t<li><a href="#versus">Interest-only vs. repayment mortgages<\/a><\/li>\r\n \t<li><a href="#eligible">Am I eligible to switch to interest-only?<\/a>\r\n<ul>\r\n \t<li><a href="#any-time">Can I <\/a><a href="#any-time">c<\/a><a href="#any-time">hange my mortgage at any time?<\/a><\/li>\r\n \t<li><a href="#temporarily">Switching to an interest-only mortgage temporarily<\/a><\/li>\r\n<\/ul>\r\n<\/li>\r\n \t<li><a href="#equity-in-property">Do I need equity in my property to switch?<\/a><\/li>\r\n \t<li><a href="#afford">Can I afford to switch to interest-only?<\/a><\/li>\r\n \t<li><a href="#borrow">How much will I be able to borrow?<\/a>\r\n<ul>\r\n \t<li><a href="#changed">Can I switch my mortgage if I have recently changed jobs?<\/a><\/li>\r\n \t<li><a href="#self-employed">Can I change to interest-only if I <\/a> <a href="#self-employed">recently became self-employed?<\/a><\/li>\r\n \t<li><a href="#contractor">Can I change my mortgage to interest-only if I am a contractor?<\/a><\/li>\r\n \t<li><a href="#maternity-leave">Is switching to an interest-only mortgage while on maternity <\/a> <a href="#maternity-leave">leave possible?<\/a><\/li>\r\n<\/ul>\r\n<\/li>\r\n \t<li><a href="#credit-problems">Can I switch to interest-only if I have credit problems?<\/a>\r\n<ul>\r\n \t<li><a href="#bad-credit">How do specialist lenders assess customers with bad credit?<\/a><\/li>\r\n<\/ul>\r\n<\/li>\r\n \t<li><a href="#speak-to-expert">Speak to an expert<\/a><\/li>\r\n<\/ul>\r\nIf you prefer to talk to someone about your specific situation, call 0808 189 2301 or make an enquiry. We\u2019ll match you with one of the expert mortgage brokers we work with.\r\n\r\nThey will be happy to answer all your questions and help you understand how changing from a repayment to an interest-only mortgage may affect your ongoing financial situation.\r\n\r\nAll the experts we work with are whole-of-market brokers with access to all the mortgage lenders across the UK. They have the tools, knowledge and experience to find you the right mortgage solution for the best available price.\r\n\r\n[feefo-banner]\r\n<h2 id="versus">Interest-only vs. repayment mortgages<\/h2>\r\nWith a repayment mortgage, your monthly payments are used to pay the interest on the mortgage and also to reduce the balance of the loan.\r\n\r\nThe repayment model is designed so that, providing you make each monthly payment, the debt will be repaid in full by the end of the mortgage term.\r\n<h3>How is an interest-only mortgage different?<\/h3>\r\nOn an interest-only mortgage, you only pay the interest on the amount borrowed, leaving the entire mortgage amount to be repaid in one go at the end of the mortgage term.\r\n\r\nA repayment mortgage provides the only certain way of ensuring the debt is fully repaid and, for this reason, lenders tend to favour these loan arrangements.\r\n\r\nHowever, there are still plenty of options for <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/interest-only-mortgages\/">interest-only<\/a> or <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/interest-only-mortgages\/part-and-part-mortgages\/">part-and-part mortgages<\/a>, where a portion of the loan is on a repayment basis and the remainder is interest-only.\r\n\r\nBy switching to an interest-only mortgage you could improve your monthly cash flow position. This is because, generally, the monthly payments on an interest-only mortgage will be lower than on a repayment mortgage as none of the payment is being used to pay off the balance.\r\n\r\nThis could help you to make investments that could potentially provide a better return than you would otherwise achieve, or it could help you to manage a difficult financial period.\r\n<h2 id="eligible">Am I be eligible for an interest-only mortgage?<\/h2>\r\nThe most important thing you need to demonstrate when switching from a repayment mortgage to an interest-only arrangement is a sound and reliable plan for paying off the whole loan at the end of the term.\r\n\r\nMany lenders are happy to lend on an interest-only or part and part basis, but they will want to know that you have a practical <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/interest-only-mortgages\/interest-only-repayment-vehicles\/">repayment strategy in place<\/a>.\r\n\r\nLenders have different criteria as to what they will accept as a repayment strategy. Some might look for regular repayments to be made into a savings or investment account, while others can consider other assets, such as buy-to-let investments. Some lenders can even accept the sale of the property at the end of the term if you plan to downsize or move into rented accommodation.\r\n<h3 id="any-time">Can I change my mortgage at any time?<\/h3>\r\nDepending on your circumstances, it should be possible to <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/remortgages\/interest-only-remortgage\/">remortgage onto interest only<\/a>, but if you are still in the<a href="https:\/\/www.onlinemortgageadvisor.co.uk\/mortgage-application\/mortgage-no-early-repayment-charges\/"> Early Repayment Charge<\/a> period on your existing mortgage, there may be fees to pay to change your product.\r\n\r\nBefore making a decision, take a look at your mortgage terms and conditions to see if this might apply to you, or if there are any other hidden charges you could incur by switching.\r\n<h3 id="temporarily">Switching to an interest-only mortgage temporarily<\/h3>\r\nIf you\u2019re experiencing a period of financial difficulty, some lenders will consider a temporary <a href="#any-time">switch<\/a> to an interest-only mortgage.\r\n\r\nWe work with specialist advisors who will be able to discuss the most appropriate option for your circumstances.\r\n\r\nIf your plans involve switching to an interest-only mortgage on a short term basis, get in touch and the advisors we work with will help you find the best lender for this.\r\n<h3 id="equity-in-property">Do I need to have equity in my property to switch?<\/h3>\r\nOne important factor on whether you can change your mortgage to interest-only is the amount of equity that you have in your property.\r\n\r\nWhile there are many repayment mortgages that are available with up to 95% loan to value (LTV), lenders tend to be more conservative in lending on an interest-only basis.\r\n\r\nHowever, there are still options for moving your mortgage to interest-only if you have only a small amount of equity in your property.\r\n\r\nSome lenders also provide the option to take a loan on a part-and-part basis in which some of the loan balance is paid on an interest-only basis up to the lender\u2019s maximum interest-only LTV and the remainder of the loan is paid on a repayment basis.\r\n\r\n[box type="shadow"]\r\n\r\n<strong>Hypothetical Example:<\/strong>\r\n\r\nYour property is worth \u00a3500,000 and you have a repayment mortgage for \u00a3400,000, giving you a\u00a0 current loan to value (LTV) ratio of 80%.\r\n\r\nYou would like to switch to an interest-only mortgage but your lender of choice only offers interest-only up to 75% LTV. However, it can provide part-and-part mortgages up to its maximum LTV of 95%.\r\n\r\nYou could therefore split the balance and pay interest-only up to 75% LTV with the remainder on a repayment basis.\r\n\r\nIn this example, your part-and-part mortgage would be made up of:\r\n\r\nInterest-only: \u00a3375,000 (75% LTV)\r\n\r\nRepayment part: \u00a325,000 (5% LTV)\r\n\r\n[\/box]\r\n\r\nIf you want to change to an interest-only mortgage, we work with specialist advisers who will be able to look at your individual situation and identify the best option for your circumstances.\r\n<h2 id="afford">Can I afford to switch to interest only?<\/h2>\r\nMonthly payments on an interest-only mortgage will generally be lower than payments on a repayment mortgage but most lenders now calculate <a href="#borrow">affordability<\/a> on interest-only loans as if it were a repayment mortgage.\r\n\r\nThis means that changing your mortgage to interest-only is not a way of stretching how much you can borrow.\r\n\r\nTo find out how much you will be able to borrow when you\u2019re changing from a repayment to an interest-only mortgage, your best bet it to talk to a whole-of-market mortgage broker, like the ones we work with.\r\n\r\nEvery lender has their own method of calculating how much you can afford to borrow, often using sophisticated affordability models. This means a lot of choice and so it\u2019s important to choose the right lender for your circumstances as this can make a big difference to how much you are able to borrow, as well as how much you could save on your monthly mortgage payments.\r\n<h2 id="borrow">How much will I be able to borrow?<\/h2>\r\nLenders base affordability on your level of income and your level of outgoings. Some providers will cap what they\u2019re willing to lend based on 4x your income, while others will stretch to 5x, and a minority 6x, under the right circumstances.\r\n\r\nDifferent lenders also consider additional sources of income, such as <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/income-types\/using-commission-and-bonus-income-for-mortgages\/">bonuses or commission<\/a> in different ways. Some lenders are able to consider 100% of bonus, while others may take 50% into consideration and some lenders may disregard bonus payments altogether.\r\n\r\n[box type="shadow"]\r\n\r\n<strong>Hypothetical Example:<\/strong>\r\n\r\nSay your basic salary is \u00a330,000, but you earn an annual bonus of \u00a320,000. Here\u2019s what different lenders might be able to lend to you:\r\n<table class="wp-block-table">\r\n<tbody>\r\n<tr>\r\n<td>Lender 1 - 50% bonus + 4x income<\/td>\r\n<td>\u00a320k x 50% = \u00a310,000<\/td>\r\n<td>\u00a330k + \u00a310k = \u00a340,000<\/td>\r\n<td>\u00a340k x 4 = \u00a3160,000 max loan<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Lender 2 - 100% bonus + 5x income<\/td>\r\n<td>20k x 100% = \u00a320,000<\/td>\r\n<td>\u00a330k + \u00a320k = \u00a350,000<\/td>\r\n<td>\u00a350k x 5 = \u00a3250,000 max loan<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n[\/box]\r\n\r\nIn this example, this difference between the amount the two lenders will lend is \u00a390,000, not because your circumstances have changed but because of the different ways they calculate your affordability.\r\n\r\nYou can read our guide to <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/income-types\/using-commission-and-bonus-income-for-mortgages\/">mortgages based on bonuses and commission<\/a> income for more information, but speaking with one of the expert brokers we work with will ensure you get the best possible outcome for the amount you want to borrow and the best available rates too.\r\n<h3 id="changed">Can I switch my mortgage if I have recently changed jobs?<\/h3>\r\nYes, this could well be possible.\r\n\r\nSome lenders may ask for a minimum of 12 months' employment history, but many lenders may consider an application from borrowers who are still in their probationary period, they may also consider those who are looking to apply for a <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/income-types\/getting-a-mortgage-with-a-new-job\/">mortgage with a new job<\/a>.\r\n\r\nSome lenders may even consider a future contract within 3 months of the start date of a new job.\r\n<h3 id="self-employed">Can I change to interest-only if I recently became self-employed?<\/h3>\r\nTraditionally, lenders have asked for 3 years\u2019 worth of business accounts. However, there are now many lenders that will make a decision based on just 1 years\u2019 accounts for a <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/self-employed-mortgages\/">self-employed mortgage<\/a>.\r\n\r\nThere are even a few lenders who will consider less trading history than this if you are close to your year-end, or if you were in the same line of work as an employee before you became self-employed.\r\n\r\nDifferent lenders also have different ways of assessing income. Many will use salary and dividends for company owners, but some can also consider profit retained within the business and this could make a significant difference to the outcome.\r\n\r\n<span style="font-weight: 400;">[box type="shadow"]<\/span>\r\n\r\n<strong>Hypothetical Example<\/strong>\r\n\r\nTake a director of a Ltd company who is a 50% shareholder of the business. The company makes \u00a3200,000 profit but you only draw a \u00a310,000 salary plus \u00a340,000 dividends to reduce your tax liability.\r\n\r\nA lender that considers your income to be salary plus dividend and lends up to 5x income might be able to lend \u00a3250,000.\r\n\r\nHowever, a specialist lender that is able to take into account profit that is retained in the business, would base its calculation on the 50% shareholding of the \u00a3200,000 profit. Even if this lender applies a standard 4x income calculation, the lender would be able to advance up to \u00a3400,000.\r\n\r\n[\/box]\r\n<h3 id="contractor">Can I change my mortgage to interest-only if I am a contractor?<\/h3>\r\nYes, this may be an option as lenders have really improved the way they deal with <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/income-types\/contractor-mortgages\/">mortgage applications from contractors<\/a> and, depending on your circumstances, there could be an option for you.\r\n\r\nDifferent lenders have different requirements \u2013 some may ask for a minimum period working in the same profession, whereas others can consider new contractors if they have previously been employed in the same industry in which they are contracting.\r\n\r\nThe lending figure is generally based on the day rate you earn, and a typical calculation might look like this:\r\n\r\nDay rate = \u00a3600\r\n\r\n\u00a3600 x 5 days (1 week) = \u00a33,000\r\n\r\n\u00a33,000 x 46 weeks = \u00a3138,000\r\n\r\nWe use 46 weeks in the above example, and not 52, because lenders allow a number of weeks for holidays and time between contracts.\r\n<h3 id="maternity-leave">Is switching to an interest-only mortgage while on maternity leave possible?<\/h3>\r\nSome lenders may allow this, as long as you can prove you will have the means to keep up with the monthly interest payments while on maternity leave. You will also need to have a viable repayment vehicle in place to settle the loan at the end of the mortgage term.\r\n\r\nMaternity leave can impact your affordability, so some lenders may want to see evidence that you will be returning to work after a set period and will be receiving enough capital while off work to cover the monthly payments.\r\n\r\nSpecialist lenders are often required for borrowers who are looking for a <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/income-types\/getting-a-mortgage-on-maternity-leave\/">mortgage on maternity leave<\/a>\u00a0or planning to go on maternity in the future, so <a href="https:\/\/enquiries.onlinemortgageadvisor.co.uk\/match-me-with-an-interest-only-specialist\/">get in touch<\/a> and the advisors we work with will help you find the right the lender for your circumstances.\r\n<h2 id="credit-problems">Can I switch to an interest only mortgage if I have credit problems?<\/h2>\r\nThe answer is often yes - switching to an interest-only mortgage is possible, depending on what type of credit problems you have had and how recently you have had them.\r\n\r\nWhile some providers (high street ones, in particular) might turn you away outright, specialist bad credit providers have the flexibility to take a broader view of your mortgage application.\r\n<h3 id="bad-credit">How do specialist lenders assess customers with bad credit?<\/h3>\r\nIn general, bad credit lenders will want to know what the issue is, how long ago it was, how much it was for and whether it has been repaid. Some lenders will also ask for an explanation about previous credit problems to help them to understand whether these were one-off events or are likely to happen again.\r\n\r\nFor more information on <a href="https:\/\/www.onlinemortgageadvisor.co.uk\/bad-credit-mortgages\/how-to-get-a-mortgage-with-bad-credit\/">how to get a mortgage with bad credit,\u00a0<\/a> we cover each credit issue and how to get a mortgage approved extensively within our bad credit page.\r\n<h2 id="speak-to-expert">Speak to an expert<\/h2>\r\nIf you\u2019re thinking of switching mortgage to interest-only call 0808 189 2301 or <a href="https:\/\/enquiries.onlinemortgageadvisor.co.uk\/match-me-with-an-interest-only-specialist\/">make an enquiry<\/a>.\r\n\r\nWe work with specialist advisors who will be able to guide you on the best options, and they will introduce you to the right lender for your needs and circumstances.