Switching from Interest-Only Mortgage to Repayment Mortgage: What You Need to Know

Switching from Interest-Only Mortgage to Repayment Mortgage: What You Need to Know

Many homeowners take out interest-only mortgages for flexibility or lower initial monthly payments. Over time, circumstances can change, and some borrowers consider moving to a repayment basis instead. Switching from an interest-only mortgage to a repayment mortgage is a common topic, particularly as the end of an interest-only term approaches or where long-term planning becomes a priority.

In the UK, switching from interest-only to repayment may be possible, but it is not automatic. Lenders apply affordability checks and specific criteria before agreeing to any change. This guide explains how the switch typically works, what lenders assess, and the practical implications to be aware of.

This article provides general information only and does not offer regulated mortgage advice.

What Is an Interest-Only Mortgage?

With an interest-only mortgage, monthly payments cover only the interest charged on the loan. The original amount borrowed (the capital) is not reduced through regular payments and must be repaid at the end of the mortgage term using a separate repayment vehicle.

Common repayment strategies include:

  • Savings or investments
  • Sale of the property
  • Pension lump sums (subject to rules)

Interest-only mortgages require careful long-term planning because the full balance remains outstanding until the end of the term.

What Is a Repayment Mortgage?

A repayment mortgage involves monthly payments that cover both interest and capital. Over time, the balance reduces, and the mortgage is fully repaid by the end of the term, assuming all payments are made as scheduled.

Monthly payments on a repayment mortgage are typically higher than on an interest-only mortgage for the same loan amount and term, because capital is being repaid alongside interest.

Why Do People Switch from Interest-Only to Repayment?

Homeowners consider switching for a range of reasons, including:

  • Approaching the end of an interest-only term
  • Concern about having a suitable repayment vehicle
  • Desire to reduce long-term risk
  • Improved income or affordability
  • Preference for paying down the mortgage balance

Switching can provide greater certainty that the mortgage will be repaid by the end of the term.

Is It Possible to Switch from Interest-Only to Repayment?

In general terms, it may be possible to switch from an interest-only mortgage to a repayment mortgage, either with your existing lender or by remortgaging to a new lender. However, approval is not guaranteed.

Lenders usually require:

  • A formal request or application
  • Updated affordability checks
  • Confirmation of income
  • Review of credit history

The process and criteria vary between lenders.

Switching with Your Existing Lender

Some lenders allow borrowers to change all or part of their mortgage from interest-only to repayment without switching lenders. This is sometimes referred to as a product or repayment type change.

Lenders typically assess:

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  • Current income
  • Household expenditure
  • Credit conduct
  • Remaining mortgage term

Even where the lender already holds the mortgage, affordability checks usually still apply.

Switching by Remortgaging to a New Lender

Another route is to remortgage to a different lender on a repayment basis. This involves a full mortgage application.

A remortgage may involve:

  • New affordability checks
  • Property valuation
  • Legal work
  • Potential early repayment charges

This route may offer more flexibility, but it can involve additional time and cost.

Affordability Considerations

Affordability is one of the most important factors when switching to repayment.

Lenders assess whether you can afford the higher monthly payments that come with repaying capital. They usually consider:

  • Gross and net income
  • Regular household expenses
  • Existing credit commitments
  • Dependants
  • Stress testing at higher interest rates

If affordability cannot be demonstrated, a switch may not be approved.

Impact on Monthly Payments

Switching from interest-only to repayment almost always increases monthly payments.

For example:

  • Interest-only payment: covers interest only
  • Repayment payment: covers interest plus capital

The exact increase depends on:

  • Remaining mortgage balance
  • Interest rate
  • Remaining term

Understanding the payment difference is essential before proceeding.

The Role of the Remaining Mortgage Term

The length of the remaining term has a significant impact.

  • Shorter remaining terms mean higher monthly repayment amounts
  • Longer remaining terms spread repayments but may increase total interest paid

Some borrowers extend the mortgage term (subject to lender criteria and age limits) to make repayment more affordable.

Partial Switches: Part Interest-Only, Part Repayment

Some lenders allow a mortgage to be split, with part remaining on interest-only and part switching to repayment.

This can:

  • Reduce the size of the interest-only balance
  • Increase payments more gradually
  • Retain some flexibility

Availability depends on lender policy and affordability.

Loan-to-Value (LTV) Considerations

Loan-to-value is also reviewed.

Lenders consider:

  • Current property value
  • Outstanding mortgage balance
  • Overall LTV after the switch

Lower LTVs often improve lender flexibility, but affordability remains essential.

Credit History and Account Conduct

Your credit history and recent account conduct are reviewed as part of the process.

Lenders may look at:

  • Missed or late payments
  • Arrears history
  • Overall credit management
  • Recent financial behaviour

Strong recent conduct can support an application, while recent issues may limit options.

Interest Rates When Switching

Switching to repayment does not automatically mean a better or worse interest rate.

Rates depend on:

  • Product availability
  • LTV band
  • Market conditions
  • Whether you stay with your current lender or switch

It is important to understand how the rate and repayment type work together.

Early Repayment Charges (ERCs)

If you are within a fixed or discounted period, early repayment charges may apply if switching requires a remortgage or product change.

ERCs can sometimes outweigh the short-term benefit of switching and should be factored into timing considerations.

Switching Near the End of an Interest-Only Term

Many borrowers explore switching as their interest-only term approaches its end.

Lenders may:

  • Require evidence of repayment plans
  • Suggest switching to repayment if affordability allows
  • Offer limited extensions in some cases

Planning early can provide more options and reduce pressure.

Common Misunderstandings

“I Can Switch Automatically”

Lender approval and affordability checks are usually required.

“My Payments Will Only Increase Slightly”

Repayment mortgages often involve a noticeable increase in monthly payments, especially with shorter remaining terms.

“Switching Removes All Risk”

While repayment reduces capital, ongoing affordability and interest rate changes still matter.

Preparing to Switch

People often prepare by:

  • Reviewing income and expenditure
  • Checking current mortgage terms
  • Understanding remaining term length
  • Reviewing credit reports
  • Assessing realistic monthly payment levels

Preparation helps reduce surprises during the process.

Alternatives to Switching

Some borrowers explore alternatives, such as:

  • Improving or changing repayment vehicles
  • Making regular overpayments
  • Part-and-part mortgage structures

Each option has different implications and suitability.

Long-Term Considerations

Switching to repayment affects long-term finances.

Key considerations include:

  • Total interest paid over time
  • Impact on monthly budgeting
  • Retirement planning
  • Flexibility for future changes

Understanding these implications helps with informed decision-making.

Summary

Switching from an interest-only mortgage to a repayment mortgage can provide greater certainty that the mortgage will be repaid by the end of the term, but it usually involves higher monthly payments and full affordability checks. Approval depends on income, expenditure, credit conduct, and remaining term.

Understanding how lenders assess switches, the impact on payments, and the timing involved can help homeowners approach the process with realistic expectations and clearer planning.

This article provides general information only. For personalised guidance, regulated mortgage advice is required.

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Important information: Mortgage Bridge provides information only and acts as a mortgage introducer. We do not provide mortgage advice or make lender recommendations. We can introduce you to an FCA-regulated mortgage adviser who can provide personalised mortgage advice.