Your interest-only mortgage is ending, here's what to do

When an interest-only mortgage reaches the end of its term, the whole loan is due in one payment. If your repayment vehicle, the endowment, ISA or investment plan meant to clear the capital, has fallen short or never existed, you have more options than you might think, but all of them reward starting early. This is general information rather than financial advice, so get a mortgage broker or regulated adviser to look at your actual position.

Size the gap first

Get a redemption figure from your lender and a current valuation of the vehicle, then work with the shortfall, not the loan. Someone with £130,000 outstanding and £70,000 in a maturing endowment has a £60,000 problem, not a £130,000 one, and smaller gaps open cheaper doors. A repayment vehicle is any plan set up to clear the capital, most commonly an endowment policy, a stocks and shares ISA or a pension lump sum, and each pays out on its own timetable, so check when yours matures against when the mortgage does. If the vehicle fell short because your circumstances changed rather than the investment underperforming, our guide to remortgaging after a change in circumstances covers that wider conversation too.

Remortgage onto repayment terms

The straight fix is a new repayment mortgage for the balance, paying interest and capital monthly. The jump is real. £130,000 on interest-only at 5.5% costs about £596 a month, while the same balance repaid over 15 years costs about £1,062. You will need to pass a full affordability assessment on your income, and MoneyHelper's remortgaging guide is blunt that lenders check your outgoings and any drop in income closely. Repaying the £70,000 vehicle first and remortgaging only the £60,000 gap brings that monthly figure down to around £490 over the same term. A part-and-part arrangement, where a slice of the loan stays interest-only against a credible repayment plan and the rest goes onto repayment terms, sits between the two if your lender offers it.

Extend the term or go retirement interest-only

Many lenders will extend a term into retirement if pension income supports the payments, which buys time for a vehicle to recover or a downsize to be planned. A retirement interest-only mortgage, usually called a RIO, is often the cleaner tool for older borrowers. You pay interest monthly, exactly as you do now, and the capital is repaid when the home is sold, when you die or when you move into long-term care. MoneyHelper's RIO guide explains that lenders typically want you over 50 or 55 and assess affordability on the interest payment alone, a lower bar than a full capital-and-interest test, and it points maturing interest-only borrowers to exactly this conversation with their lender.

Downsize on your own timetable

Selling and buying somewhere cheaper clears the debt without any affordability test at all. The trap is timing. A forced sale at term end is a bad negotiating position, while a planned downsize two years out lets you sell properly and buy well. If you go this route, treat it as a normal move, chain and all, so it's worth understanding how a property chain actually works before you list. Remember the sale must complete before the lender's deadline, not just be agreed.

The order of calls

Ring your lender 12 months or more before maturity, because lenders can offer extensions and product switches without a broker, then price the open market against whatever they offer. Do nothing and the loan simply falls due, at which point the lender's options and yours both narrow to a sale. Our separate article on when to remortgage covers the timing mechanics for borrowers whose deal, rather than term, is what's ending.

If downsizing or switching lender is the answer, legal work follows, so compare conveyancing quotes early and have a solicitor ready to move when you are.