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What If I Can’t Pay Off My Interest-Only Mortgage?

Property Saviour » Mortgages » What If I Can’t Pay Off My Interest-Only Mortgage?

Are you one of the 750,000 homeowners with a wholly interest-only mortgage? Maybe you’re one of the 245,000 with a partial interest-only mortgage?

In England, 70% of landlords own a home with a mortgage, which is higher than among owner-occupiers. If you’re one of them, you may not be able to pay off your interest-only mortgage.

Interest-only mortgages look more attractive than repayment mortgages because of the lower monthly payments. But they come with their own set of challenges, especially when the interest-only period ends.

At that point, you’ll need to pay off the full amount of the money you borrowed when you first took out the mortgage.

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What If I Can’t Pay Off My Interest-Only Mortgage?

If you need more time to pay off your mortgage, you can request a longer mortgage term.

By doing this, your monthly mortgage payment may not increase as much, but you will end up paying more interest over the entire term. If you’re considering switching to a repayment mortgage to make your payments more manageable, a mortgage broker might suggest extending the mortgage term.

What is an interest-only mortgage?

An interest-only mortgage is a type of home loan which requires you to pay only the interest charges on the borrowed amount (capital) over the pre-determined mortgage term. During the term of this mortgage, you are only responsible for the interest costs, leaving the capital untouched.

As a result, the amount owed to the lender remains the same and at the end of the mortgage term, you must pay back the same amount which you borrowed initially.

You can make a lump sum payment from your savings, investments or pension, refinance your property, or sell your flat or property portfolio.

You are more exposed to house prices, as the amount you owe never goes down. If your house price falls below the mortgage balance, you could be faced with a negative equity situation.

The total interest you pay over the lifetime of the interest-only mortgage will be higher than that of a repayment mortgage, as the capital balance is never reduced.

What If I Can’t Pay Off My Interest-Only Mortgage
Lower initial monthly payments make homeownership more accessible.

What happens at the end of an interest-only mortgage?

When your interest-only mortgage comes to an end, your lender will expect you to pay back the loan in full with a single lump sum.

They will have been in touch with you a year before, six months before, and just before the end of your mortgage to discuss your options. The earlier you notify your lender that you can’t pay off your interest-only mortgage, the more they can do for you.

  1. Refinance – Your lender may be able to switch all or some of your mortgage to a repayment mortgage with a later agreed full repayment day. You may be able to switch to another lender. They may even let you pay it back with several agreed payments instead of one lump sum.
  2. Equity Release – If you’re over 55, you may be able to take out an equity release scheme to pay off your interest-only mortgage. This would allow you to access part of the equity held in your home while still living there. One such choice is a lifetime mortgage.
  3. Policies – If you don’t have savings but have an endowment, investments, or policies, you could sell these to pay off your interest-only mortgage.
  4. Pension – If you have a pension, you can use the lump sum to repay some or all of the money you owe. However, be aware that this will impact your retirement income, so you should see independent financial advice before doing this.
  5. Sell Your Home or Second Property – If you are worried about not being able to pay off your interest-only mortgage at the end of the term, you can consider the option of selling your flat, house, or buy-to-let property portfolio.
How can I get out of an interest-only mortgage
If you don't have savings, but have an endowment, investments, or policies, you could sell these to pay off your interest-only mortgage.

How can I get out of an interest-only mortgage?

The only option is to sell.  These are different types of sale methods available to you:

Estate Agent

Selling your home through a traditional estate agent may help you get the highest price, but it can take the longest time. On average, it takes 4 to 6 months for a property to be shown and sold via an estate agent.

The downside of going this route is that until a contract is exchanged, the sale can fall through due to a variety of reasons, including a broken property chain, mortgage approval issues, gazundering, or the buyer simply changing their mind. You may also have to pay an estate agent’s fee and legal fees.

Auction

Auction houses can sell your property under auction conditions so that when the auctioneer’s hammer goes down, you and the buyer are legally bound. The buyer must make a 10% deposit within 24 hours and pay the remaining amount on the specified date.

This process takes approximately 4 to 6 weeks. However, there is no guarantee that your property will sell and you will need to pay an entry fee, regardless of whether the sale goes through or not. It is worth mentioning that you won’t know the price you will get for your house and will have to pay legal fees.

Cash house buyers

Cash house buyers are another option, and they can be very attractive for someone who wants to quickly sell their house and pay off their interest-only mortgage, as they purchase properties in any condition.

However, they will likely offer you less for your property than other methods. Not all cash buyers are genuine, so be wary of suspiciously high offers. Expect delays and price drops at the last minute with any offers ‘too good to be true’.

How to Repay an Can’t pay off my interest-only mortgage-Only Mortgage?

If you’re losing sleep over the thought of not being able to pay off your interest-only mortgage, don’t worry – you have options. Start by talking to your lender as soon as possible and find the solution that fits your situation best.

If you’re considering selling your property, Property Saviour can help. We are a genuine cash house buyer and don’t need to borrow funds, so your property won’t be in a chain.

This means we can guarantee a quick house sale, providing you with the funds you need quickly. Plus, we even cover your legal fees. All you need to do is follow these five easy steps:

  • Use our enquiry form to get a free cash offer.
  • Receive the offer and decide if you want to proceed.
  • If you decide to move forward, an in-person valuation will take place.
  • A final cash offer is made, and upon acceptance, solicitors are instructed. We cover your legal fees.
  • You confirm a completion date, and the sale is complete – you receive your cash.

So, what are you waiting for? Contact us today.  Here are some of our unique values:

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Property Saviour Price Promise

  • The price we’ll offer is the price that you will receive with no hidden deductions.
  • Be careful with ‘cash buyers’ who require a valuation needed for a mortgage or bridging loan.
  • These valuations or surveys result in delays and price reductions later on.
  • We are cash buyers.  There are no surveys.
  • We always provide proof of funds with every formal offer issued.
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We'll Pay £1,500 Towards Your Legal Fees

  • No long exclusivity agreement to sign because we are the buyers.
  • You are welcome to use your own solicitor. 
  • If you don’t have one, we can ask our solicitors for recommendations.
  • We share our solicitor’s details and issue a Memorandum of Sale. 
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Sell With Certainty & Speed

  • Our approach is transparent and ethical, which is why sellers trust us.
  • 100% Discretion guaranteed. 
  • If you have another buyer, you can put us in a contracts race to see who completes first.
  • Complete in 10 days or at a timescale that works for you.  You are in control.

Sell with certainty & speed

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