At the end of a 10-year interest-only mortgage, the initial, low-payment period concludes, and the borrower must begin paying both principal and interest, resulting in significantly higher monthly payments. Alternatively, the full, unpaid principal balance may come due as a lump-sum "balloon" payment.
When the term finishes, you still owe the original loan amount, as you have only covered the interest. If you are coming to the end of an interest-only mortgage, it's important to know your options early. Planning ahead can make all the difference.
An interest-only mortgage lets you pay only interest for a certain number of years, typically 3 – 10, which lowers your monthly payment during that time. However, once that period is over, you'll need to start paying interest and your monthly payment will be higher.
At the end of the interest-only period, the loan will change to a 'principal and interest' loan. You'll start repaying the amount borrowed, as well as interest on that amount. That means higher repayments.
At the end of the term of an interest-only mortgage you will still owe the amount your originally borrowed. In an ideal world, when your interest-only mortgage ends, you'd have sufficient cash savings or investments to pay off the capital balance. But, unfortunately, this won't be the case for many borrowers.
👎 Drawbacks of Interest-Only Mortgages
With interest-only, you're only paying to borrow, not own. So, unless the market adds value to your home, you won't be building any equity. If prices drop, you could even end up owing more than your home's worth – a bit like paying rent but with a big bill waiting at the end!
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Repayment plans
Disadvantages
What are the benefits of interest-only mortgages? Some people like the flexibility to be able to make lower payments initially, and pay more when their income or savings increase near the end of their mortgage term.
A 10-year mortgage can be smart for those who want to own their home debt-free fast and save significantly on total interest, as they usually offer lower rates and build equity quickly, but it's only wise if you can comfortably afford much higher monthly payments, which limits financial flexibility for other goals like retirement or emergencies. It's best for financially stable individuals with excellent credit who prioritize rapid debt elimination over lower monthly cash flow, or for those refinancing a nearly paid-off mortgage.
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.
You do not need a solicitor if you have reached the end of your mortgage term and are paying off your debt in full. You need a conveyancer if you are remortgaging with another lender.
Interest-only mortgages used to be easy for banks to resell to other financial institutions. That's no longer the case. Today, this loan type is seen as higher risk. As a result, mortgage lenders often charge higher interest rates than they do for fixed-rate mortgages.
If your mortgage term ends before your mortgage is paid. Speak to your lender right away if you cannot repay the capital sum that you owe. You can ask them to work with you on a repayment plan. Your lender cannot ask for the money back until your mortgage term ends.
For example, if you have a 25 year, £200,000 mortgage with a 3% interest rate, your interest-only payments would be £500 rather than almost £950 on a repayment mortgage. Our interest-only calculator will help you calculate how much your monthly interest payments will be.
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.
Interest-only repayments
Once the agreed interest-only period ends, you'll start repaying your principal at the current interest rate at that time. As you're not making payments on the 'principal', this will remain the same, unless you choose to make additional repayments.
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