If you cannot pay your interest-only mortgage, you risk repossession of your home, as you still owe the original loan amount at the end of the term. Immediate actions include contacting your lender, exploring term extensions, switching to a repayment plan, or selling the property to repay the debt.
Call your lender and ask about overpayments or switching to part repayment and part interest only. Check whether you'll be charged any fees. If you're worried that you won't be able to repay the mortgage, contact your lender and explain the situation. If you can't work out a solution with your lender, get free advice.
In most cases, you can be as far as 120 days — or four consecutive payments — behind on your mortgage before foreclosure on your home begins.
As a rule, the earlier you ask “can I extend my interest-only mortgage term”, the more they'll be able to do for you. There are several different ways they could extend your mortgage, including: turning all or part of it into a repayment mortgage, with a later agreed full repayment date.
If you can't pay your mortgage, immediately contact your lender and a HUD-approved housing counselor to explore options like forbearance (pausing payments), a repayment plan, or loan modification, as waiting reduces your choices; other solutions include short selling or deed-in-lieu of foreclosure, but always watch for scams by avoiding upfront fees and promises of guaranteed fixes.
From selling your home to working with your lender to modify your terms to renting out your home, there are legal ways to get out of your mortgage. Be sure to weigh the pros and cons of all your options, however. They could have long-term financial consequences for your credit and ability to buy another home.
Mortgage forbearance is a temporary pause or reduction in your monthly mortgage payment. These are typically short-term arrangements of 3 – 6 months. Your servicer may require you to show proof of financial hardship to qualify you for this option.
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.
Yes, you could switch some or all of your interest only mortgage to a repayment mortgage (also known as a capital repayment mortgage) if this is suitable for you and you meet our criteria. We will not charge you a fee to do this, although you will see an increase in your monthly mortgage payments.
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.
Most lenders will allow three missed payments before considering foreclosure. However, it's best to communicate with your lender if you're struggling to make payments. Many lenders may be willing to defer payments to help you regain control of your finances and avoid foreclosure.
Repayment holidays
A repayment holiday can pause your principal and interest repayments for a period of time. Repayment holiday policies vary lender to lender, Eg. Some lenders may grant a repayment holiday for three months, with an option to review and extend to six months.
If you'd like to reduce your balance before your mortgage term comes to an end, you could make regular or lump sum overpayments. And if your initial period has ended (which could have been a fixed or tracker rate), you can overpay without paying an Early Repayment Charge.
If you know you'll come into enough money to cover the full cost of a home, a repayment mortgage may not suit you. But if you won't receive the money for a number of years, an interest-only mortgage can help you buy property now, and still pay off the purchase price in one go once the mortgage term ends.
With an interest-only home loan, you can keep the original debt separate. You can then put savings into an offset account against any debt that's not tax deductible. This means you can move your savings to whichever debt is not tax deductible, which helps separate your debt.
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.
👎 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!
Once the interest-only period ends, you may have several options:
Quick Answer. In general, a lender begins foreclosure after you miss four consecutive mortgage payments.
If you are having trouble making repayments, you can apply for a hardship variation with your lender. If you stop making repayments on the home loan, the lender can take legal action against you to repossess (take) your home to repay the loan.
To qualify for mortgage forgiveness, you generally need to prove significant financial hardship (like job loss or reduced income), have your mortgage on a primary residence, and apply through your lender for options like loan modification, short sale, deed-in-lieu, or specific government programs (e.g., HAF), providing extensive financial documents to show your situation, though lenders rarely forgive debt outright, preferring other relief.
If you lose your job, call your lender right away
You should contact your mortgage servicer as soon as you anticipate financial hardship, says Hala Garmo, regional mortgage manager for U.S. Bank. They can help you come up with a plan — after all, they have a financial incentive to keep you paying your mortgage.
A mortgage hardship is a significant, unexpected financial challenge, like job loss, disability, divorce, or major medical bills, that makes it difficult for a homeowner to make their monthly mortgage payments, prompting them to seek temporary relief options like forbearance or modification from their lender to avoid foreclosure.