Can I extend my interest-only mortgage term?

Can I extend my interest-only mortgage term?

If you have an interest-only mortgage, it might be that you’re interested in extending it. Especially if you’re coming to the end of the mortgage term and are worried about repaying the final lump sum, this could be one avenue that seems logical to you.

But will you be allowed to extend your interest-only mortgage? The answer isn’t a simple one as mortgage lenders have their own criteria when it comes to mortgage extensions.

In this guide, we will take a closer look at interest-only mortgages, by the end of this guide you will be able to answer the question. Can I extend my interest-only mortgage term?

What is an interest-only mortgage?

Interest-only mortgages are very attractive as they are cheaper than conventional repayment mortgages.

With an interest-only mortgage, only the interest on your balance needs to be paid back each month. As such, your monthly repayments will often be lower than those found on a repayment mortgage which consists of both interest and the mortgage capital.

But while your mortgage repayments will be smaller with an interest-only mortgage, you will still need to repay the capital at the end of the mortgage term.

Mortgage lenders will want to know how you are going to cover the outstanding balance after making all of your other mortgage repayments, so it’s wise to make a plan before you make your mortgage application.

What kind of terms are available on interest-only mortgages?

Lender criteria is quite strict for interest-only mortgages. For one thing, the loan to value is often capped at 50% so a larger deposit will be needed. This might make it harder for a first-time buyer who doesn’t have the savings required.

Some lenders will only offer interest-only mortgages to customers earning over £100,000 a year so this can make them inaccessible to many people.

However, there are those lenders with a more flexible lending criteria, so you might still be eligible for an interest-only mortgage if this is your preferred option.

How long can you have one?

An interest-only mortgage term usually ranges from between 5 to 25 years. However, this depends on the borrower’s circumstances. In some cases, lenders will consider longer terms, perhaps up to 40 years if this is right for the borrower in question.

These mortgages can also be obtained on a shorter basis. Provided you could prove your ability to repay the capital after a shorter time frame, perhaps at the end of 2 years, a mortgage provider might approve your application.

How can I pay off my outstanding interest-only debt? 

For some people, the easiest way to pay off their outstanding debt is to sell their property and use the money they have raised from the sale to pay off the remainder of their mortgage. This is usually possible when the person downsizes to a less expensive property and they have excess cash.

While this is a good idea, in theory, it’s not always possible for those homeowners who are in negative equity. As such, the sale of their property won’t give them the funds they need to pay off their mortgage balance.

If selling your home isn’t an option for you, for whatever reason, there are other ways to make this final payment. You could use the money raised from the sale of property stocks or from any of your other investments if you have any. You could also use cash savings, take out money from your pension, or tap into other types of repayment vehicles.

Alternatively, you may be able to extend the mortgage to give you more time to save for the final lump sum.

Can I extend the length of my interest-only term?

You can extend the length of your interest-only term but you will need to meet your lender’s minimum income requirements. You should let your mortgage lender know as soon as possible your need for an extension as this will give both you and them time to consider your available options.

Your mortgage lender might keep you on the same mortgage product when you extend or they might have other products available to you that could be more suited to your individual circumstances.

If you aren’t able to extend, you do have other options open to you, as we will discuss in a moment.

Can I extend my mortgage term if I’m retired?

Younger borrowers have a better chance of extending their mortgage terms than older borrowers. This is because most lenders cap the lending age at 75 so they might not be willing to extend the term of any existing deal further for those of retirement age.

However, this isn’t the case for all lenders so you may still have the option to extend your mortgage term if you’re retired, provided you don’t have a lot of other debts and you can prove your ability to make further monthly payments.

What options do I have if I can’t extend my current interest-only mortgage?

If you can’t extend your interest-only mortgage with your current lender at the end of the term, there are other options available to you. You could…

  • Switch lenders – It is possible to refinance onto another interest-only mortgage with a different lender but you will need to meet their eligibility criteria. If you have bad credit or a poor track record of making your repayments, your application may be declined.
  • Pay off in cash – You could pay the balance outstanding with any savings you have made. Alternatively, your friends or family members may be able to lend or gift you more cash if they are able to do so. If you are over 55 and have a pension that you’re not yet receiving, you could also choose to release a tax-free lump sum from your pension to repay your debt.
  • Sell the property – If you are able to sell your home and move to a cheaper property, you may have a large sum of money at your disposal to pay off the remainder of your mortgage.
  • Switch to a repayment mortgage – If it is affordable for you to switch to a repayment mortgage, most mortgage lenders will allow you to do this. The monthly repayment basis will include both the interest and the loan capital.
  • Switch to a retirement interest-only mortgage – If you are an older borrower, this could be one viable option if you are able to make the required monthly payment on this type of mortgage.
  • Remortgage to a lower rate and overpay – It’s possible to reduce your interest fees and free up cash to make your overpayments if you choose this option.
  • Equity release – If you are over the age of 55, you could release equity via a lifetime mortgage. Equity released from your home would grant you the option of staying in your property without having to pay off the balance on your mortgage.
  • Repossession – This is the worst possible outcome so it is worth exploring your other options first. If there is a viable repayment vehicle available, you should consider that before your home falls into repossession. Talk to a mortgage broker such as ourselves for tailored advice related to your personal circumstances.

How a mortgage broker can help

If you are currently on an interest-only mortgage term and need mortgage advice related to your mortgage terms, contact us for a no-obligation chat. A mortgage advisor will explore your options with you if you want to extend your mortgage or switch to a new lender with a more affordable repayment plan.

If you do decide to move onto a new mortgage loan, we will search the market for the mortgage products that are right for your financial needs. We will consider those lenders that are more likely to offer you mortgage approval and we will give you all the help you need throughout the mortgage application process.

For more information on your interest-only mortgage term, with the mortgage advice you need to help you make the right decision, get in touch with our friendly and experienced mortgage team today.

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Steve Roberts
Steve Roberts

Stephen Roberts MAQ is the founder of YesCanDo Money, Hampshire's largest no-fee mortgage brokers. With over 30 years of mortgage experience, he has advised and helped thousands of First-time buyers buy their first home and home movers buy their dream home. Speak to a mortgage expert today by completing our contact form:

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