Skip to content

Can I change my mortgage to interest-only?

Ashton Berkhauer
Written by  Ashton Berkhauer
5 min read
Updated: 18 Mar 2024

Looking to change your mortgage to an interest-only product? Read on and we’ll explain what switching to an interest-only mortgage means, how you can do it, and what impact it will have.

For homeowners considering a shift in their mortgage structure, the option of switching from a repayment mortgage to an interest-only mortgage often surfaces.

But what does this entail, and is it the right move for you?

Understanding interest-only mortgages

Before diving into the specifics of changing your mortgage type, it's important to grasp the fundamental differences between repayment and interest-only mortgages.

Interest-only vs repayment mortgages

  • Interest-only: Monthly payments cover only the interest on the mortgage. The capital debt remains unchanged, and you'll need a robust plan to repay the full mortgage amount at the end of the term.

  • Repayment mortgage: You pay off both the capital and the interest each month. By the end of the mortgage term, you will have paid off the entire debt.

If your lender agrees, you can often change your repayment mortgage to an interest-only mortgage. To initiate this switch, reaching out to your lender is the first step.

The mortgage charter: A six-month breather

The government's Mortgage Charter provides a lifeline for those in need of temporary financial relief.

Lenders that subscribe to the charter may permit a six-month transition to an interest-only mortgage without an affordability assessment.

This means during this period, you're only responsible for the interest portion of your mortgage, potentially lowering your monthly outgoings significantly.

No affordability assessment under the charter

The charter's provisions are designed to offer a quick solution without the need for a rigorous financial review or impacting your credit file.

However, it's crucial to remember that after six months, your mortgage will revert to its original repayment structure.

Making the switch: long-term considerations

If you're contemplating a switch to an interest-only mortgage outside of immediate financial hardship, be prepared to present a repayment strategy. This could include:

  • Savings or investments

  • Property assets

  • Plans to downsize or sell the property in the future

Having substantial equity in your home can also sway lender approval in your favour.

Permanent change? Think about remortgaging

For those looking to make a lasting change to an interest-only mortgage, remortgaging might be the most viable route.

This involves a fresh mortgage agreement and potentially a new lender, but it allows for a permanent shift in payment structure.

Evaluating the pros and cons

Switching to an interest-only mortgage isn't a decision to be taken lightly. Consider the following advantages and disadvantages:

Pros:

  • Drastically reduces your monthly mortgage payments

  • Offers short-term financial relief during tough times

  • Allows for the potential investment of savings at a higher interest rate, which could be used to pay off the principal later

Cons:

  • Slows down the pace of building home equity unless property values rise

  • Necessitates a solid plan to repay the mortgage's principal amount at the end of the term

Alternatives to consider

If you're hesitant about switching to an interest-only mortgage, extending your mortgage term could be another option to lower monthly payments.

This alternative doesn't require an affordability assessment and can be reversed within six months.

However, it may lead to increased interest costs over time and could impact retirement plans for older borrowers.

Can you switch back?

Yes, reverting to a repayment mortgage is possible after the interest-only period or after the six-month period under the Mortgage Charter.

Be mindful that monthly payments will be higher due to the time spent on the interest-only plan.

Making an informed decision

When considering a switch to an interest-only mortgage, it's essential to weigh your current financial situation against your long-term goals.

For more information on mortgage types and what might suit your circumstances best, explore What kind of mortgage can I get?

If you're struggling to keep up with mortgage payments, it's crucial to act promptly. For guidance on understanding financial challenges, check out What to do if you’re struggling to pay your mortgage.

Switching to an interest-only mortgage can offer a temporary reprieve or a strategic financial move, depending on your situation.

As with any significant financial decision, it's advisable to consult with a financial advisor or mortgage expert to ensure that the path you choose aligns with your financial health and goals.

Compare mortgages now
Find a mortgage