Yes, you can absolutely sell a house with an interest-only mortgage. The sale proceeds are used to pay off the principal balance of the loan, with any remaining equity going to you. Many homeowners sell before the interest-only period ends, making it a common strategy for handling this type of loan.
Yes. You don't need your mortgage to be fully paid off in order to list your house for sale — in fact, selling a property with a mortgage is very common. The important thing to remember is your home equity, which is the difference between your home's current market value and what you still owe on the mortgage.
You could change to a mortgage where you repay the capital as well as the interest. This is called a repayment mortgage. Your monthly payments are more but you can start paying back the capital you owe. If you cannot afford to switch your whole mortgage, you could keep some of it interest only to afford the payments.
What are the disadvantages of interest-only mortgages?
You can sell the home at the end of the term to pay back what is owed. There are rules around this: This can be used to cover up to 60% of the value of the property. So, if you want to borrow more than 60% LTV, you will need to pay off the rest with another strategy.
Switch to a repayment mortgage
If you have sufficient time before your interest-only mortgage ends, ask your lender to switch it to a repayment mortgage. This will increase your monthly payments but endure that the balance is repaid at the end of the term.
Repayment plans
Can I refinance an Interest-Only mortgage loan? Yes, you can typically refinance an Interest-Only mortgage loan. Borrowers often choose to refinance into a traditional principal and interest loan, especially as their financial situation changes or interest rates become more favorable.
If you have an interest only mortgage – or part of it is interest only – you can change to a capital repayment mortgage. That means you'll start to pay off the capital you've borrowed as well as the interest. If you move your whole mortgage to capital repayment you will have paid it off in full by the end of the term.
As the monthly payments on interest-only mortgages cover just the interest owed, they can often be hundreds of pounds cheaper than those for a repayment mortgage for the same amount.
The option of making interest-only mortgage payments will generally last between three and 10 years. After the interest-only payment period ends, you will then have to make principal and interest payments, which means your monthly payment will increase, regardless of whether the interest rate stays the same or changes.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
Short-term savings: Renting is cheaper than buying in the short term because you don't need a big down payment or lump sum to buy a house. Moving flexibility: You have much more flexibility with changing your home and moving around. This is great for individuals not set on living in the same place for years to come.
Some lenders can extend interest-only mortgages by up to 20 years. The lender will need to assess your income, credit history, and repayment vehicle again to make sure you can make the final payment later.
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.
Understanding Mortgage Affordability in Canada
For insured mortgages in Canada, CMHC recommends a maximum GDS ratio of 39%. For a $90,000 salary (which breaks down to $7,500 per month), this means your housing costs shouldn't exceed $2,925 per month.