What If I Can’t Repay My Interest-Only Mortgage?

Interest-only mortgages can seem like a manageable way to buy a home — especially when the monthly payments are lower than a repayment mortgage. But what happens if you reach the end of the term and don’t have the lump sum ready to repay the original loan?

It’s a question that many homeowners across the UK are now facing. With thousands of interest-only deals maturing each year, more and more people are wondering: What if I can’t repay my interest-only mortgage?
Let’s take a closer look at what your options are, and what you can do if you’re in this situation.

First, Understand How Interest-Only Mortgages Work

With an interest-only mortgage, you only pay the interest on the loan each month — not the loan itself. That keeps your monthly payments lower, but it means the original debt doesn’t shrink over time.

When the term ends (usually 25 years), you’re expected to pay back the full loan in one go. For example, if you borrowed £150,000, you’ll still owe £150,000 at the end of the mortgage term.

If you’re prepared and have a repayment plan in place, this stage should be straightforward. You use your savings, investments, or proceeds from the sale of your property to clear the balance and close the mortgage account.

However, if you haven’t got the funds ready — or your plan hasn’t performed as expected — you may find yourself under pressure. The lender may start asking how you intend to repay, and in some cases, they’ll set deadlines or begin formal proceedings if no solution is reached.

It’s important to remember that lenders don’t typically want to repossess homes — they’ll usually work with you to find a way forward. But the clock does start ticking once the mortgage matures, so it’s crucial to act quickly and keep the lines of communication open.

There may still be options on the table, even at this late stage, but the sooner you explore them, the better your chances of avoiding serious financial stress.

Can I Extend an Interest-Only Mortgage?

Yes, in many cases you can extend an interest-only mortgage — but it’s not guaranteed, and it depends on your lender and circumstances.

If your mortgage term is coming to an end and you don’t yet have the funds to repay the balance, one of the first things to do is ask your lender whether an extension is possible. Some lenders may agree to give you more time, particularly if:

• You’ve kept up with payments
• You have a clear plan to repay the loan (e.g. downsizing or selling)
• Your income can still support the interest payments

That said, lenders will assess your affordability and how much risk is involved. They might ask for updated information about your finances, employment, or retirement plans.

Keep in mind that not all lenders offer term extensions on interest-only deals — and even if they do, the extension might only be for a few years. It’s meant as breathing space, not a long-term fix.

If your current lender won’t extend the term, you could consider remortgaging with another provider — but this often depends on your age, income, credit history, and the equity in your home.

Always speak to an independent mortgage adviser before making a decision. They can help you explore all your options and explain what’s realistic based on your situation.

Will Equity Release Help You Pay Off an Interest-Only Mortgage?

Equity release can be a helpful way to clear an interest-only mortgage, particularly if you’re over 55 and own a home with enough value built up in it.

Many homeowners nearing the end of an interest-only term find themselves “asset rich but cash poor” — with a large loan to repay and no savings or investment plan to cover it. This is where equity release may come in.

The most common type is a lifetime mortgage, which allows you to borrow a portion of your home’s value while still living in it. The money released can be used to repay your existing mortgage in full. You won’t need to make monthly repayments unless you choose to, as the interest is usually rolled up and repaid from the sale of your home when you pass away or move into long-term care.

It’s not a decision to take lightly, though. Equity release will reduce the amount of inheritance you leave behind, and there are long-term costs to consider. However, it can offer peace of mind by clearing the outstanding loan and removing the pressure of monthly payments.

What Happens If You Can’t Repay It?

If you don’t have a repayment plan in place, or if your plan hasn’t grown enough to cover the full amount, it can feel overwhelming. But don’t panic — there are steps you can take.

Speak to Your Lender Straight Away

As soon as you realise you may not be able to repay the loan, talk to your lender. Don’t wait until the term ends.
Lenders are often willing to help, especially if you reach out early. They may offer options such as:

• Extending the term of your mortgage
• Switching part or all of it to a repayment mortgage
• Letting you stay on the mortgage for a short time while you sort things out

They are required by the Financial Conduct Authority (FCA) to treat you fairly and consider your circumstances.

Consider Selling Your Property

In some cases, selling your home might be the most practical solution. If the property has gone up in value, you may be able to pay off the loan and still have money left over.
It’s not ideal, especially if you want to stay in your home. But for some, it’s the cleanest way to settle the debt.

Explore Equity Release (If You’re Over 55)

If you’re aged 55 or older, equity release could be an option. This allows you to access the money tied up in your home without having to move.

There are different types of equity release, including lifetime mortgages, where the loan is repaid when you die or move into care. This isn’t right for everyone, though, so it’s vital to get independent financial advice.

Switch to a Repayment Mortgage

Depending on your age, income, and financial situation, you might be able to switch your interest-only mortgage to a repayment one. This would increase your monthly payments, but it would help you chip away at the capital.
Many lenders are open to this, especially if you still have several years left on your term.

Look Into Retirement Interest-Only Mortgages

If you’re retired or nearing retirement, a Retirement Interest-Only (RIO) mortgage might suit your needs. These are designed for older homeowners and allow you to pay just the interest each month, with the loan being repaid when you sell your home, move into care, or pass away.

Unlike traditional interest-only mortgages, there’s no fixed end date — so they’re often more flexible in later life.

What If I Simply Can’t Pay?

If you’re unable to sell your home, refinance, or switch mortgage types, and you have no means to repay the debt, you could be at risk of repossession. That’s why it’s essential to act early.

Organisations such as Citizens Advice, StepChange, or Shelter can offer free, confidential guidance. They can help you understand your rights, explore all your options, and deal with your lender.

Don’t Ignore the Problem

An interest-only mortgage can become a serious financial issue if not addressed in time. But you’re not alone — and help is available.

Start by gathering all your paperwork, checking your mortgage statement, and understanding exactly how much you owe and when it’s due. Then speak to your lender and get proper financial advice.

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