How long can you pay interest only on your mortgage?
This type of mortgage caters specifically to individuals with significant assets, allowing them to benefit from the flexibility of paying only the interest on their loan for a set period, usually five to ten years. The exact range will depend on the lender's specific terms and the borrower's financial profile.
You'll pay interest on a monthly basis during the mortgage term, which might be as short as a few years or more than 20 years. Once your mortgage term is over, you'll still owe the lender the same amount you initially borrowed – so you'll need to either pay it back or remortgage your home.
The bank won't give you an interest only loan forever. Generally, the bank will approve an interest only mortgage for up to 5 years. So once you get to the end of your interest only period, you need to apply for another interest only period. But each bank has different policies.
Interest-only repayments are available for a set period over the life of the loan. Up to 5 years on an Owner-occupied loan and 10 years on an Investment loan. Principal and interest repayments following an interest-only period will be higher than if you'd been paying both the principal and interest from the start.
If you have an interest-only mortgage, you need to make plans to repay the capital (the amount you borrowed). If you don't, you will have a large amount to pay at the end of your mortgage term and may need to sell your home to repay it.
Important things to consider
There are limits to how long you can have interest only periods – the maximum interest only period at any one time is five years for owner occupiers and 10 years for investors (credit criteria applies). Interest only is not available in the last five years of your loan.
Overall, using a temporary interest-only payment period means that the total amount you'll need to repay will be higher. But it can be useful because the monthly payments during the 6 months are lower.
Interest rates can go up: Interest-only loans usually come with variable interest rates. If rates rise, so will the amount of interest you pay on your mortgage.
It's possible to extend an interest-only mortgage, but it's never guaranteed. Whether or not you can extend yours will depend on your lender. The FCA recommends getting in touch with them as soon as possible.
An interest-only mortgage is a home loan that allows borrowers to make interest-only payments for a set amount of time, typically between seven and 10 years, at the start of a 30-year term.
What happens after an interest-only mortgage ends?
Andy Done answers frequently asked questions on interest-only mortgages. When an interest-only mortgage ends, the borrower is expected to pay back the amount remaining on their mortgage, provided they have not made any overpayments. This will be the amount that was originally borrowed.
- Paying off the loan balance all at once.
- Refinancing the mortgage loan, if refinancing is available.
- Beginning to pay off the balance in monthly payments, which are higher than the interest-only payments.
For first-time home buyers, an interest-only mortgage also allows them to defer large payments into future years when they expect their income to be higher. However, just paying interest also means that the homeowner is not building up any equity in the property—only the repayment of principal debt does that.
- Sell your property. ...
- Switch to a capital repayment mortgage. ...
- Make overpayments. ...
- Savings. ...
- Pension lump sum. ...
- Equity release.
When switching from an interest-only mortgage to a repayment mortgage, you may need to remortgage. Remortgaging means taking out a new mortgage with a different lender in order to pay off your existing mortgage.
This is a type of interest-only mortgage where you use a bank or savings account balance held alongside the loan to offset the total sum, and pay a lower amount of interest. Offsetting the amount you have in savings against the whole mortgage just means that you are effectively paying interest on a smaller loan.
At the end of an interest-only mortgage the loan amount must be repaid in full. If the borrower wishes to remain in the property, they will need to find the equity to repay the principal from elsewhere. Otherwise, they can sell the property and use the proceeds to repay the loan.
How long can you stay on an interest only mortgage? A typical interest only mortgage lasts between five and 25 years.
It's definitely possible to temporarily move to an interest-only mortgage while on maternity leave. Taking time out from work to have a baby can make money tight, so it could be a good way to reduce your outgoings for a while. You'll still have to prove that you can afford the repayments without struggling.
With a mortgage on an investment property, interest-only repayments apply for a maximum of 10 years over the life of the loan.
Will paying interest only on my mortgage affect my credit score?
Need a bit of time to get your budget back on track? Switch to interest only payments for six months, with no impact on your credit score.
Overpayments on interest-only parts of your mortgage won't automatically reduce your monthly mortgage payment, unless you ask us to, but could save you money by reducing the amount of interest charged.
Interest-only mortgages are primarily designed for borrowers who stand to make a profit from their loan-funded purchase. For example, if you flip houses, you might take out an interest-only loan to purchase a fixer-upper, since you plan to sell the house at a higher price later.
Yes, it's possible to refinance an interest-only loan. However, many lenders require a loan-to-value ratio of 80% or lower to qualify. To attain the 20% equity needed to refinance, your home's value will need to increase or you'll have to make extra payments toward the principal during the interest-only period.
Interest-only mortgages are an excellent option for people with clear, documented assets, strong credit and a financially sophisticated approach to home ownership. This type of home loan is attractive for keeping capital available by lower monthly payments for a set period of time before the principal is due.
