Interest Only Mortgages

When you have an interest only mortgage, your monthly payment only covers the interest charged on your mortgage but won’t reduce the amount you have borrowed. This means you need to have a repayment plan in place to make sure you can afford to pay back your loan at the end of your mortgage term.

 

Your monthly payments will be less than if you had a repayment mortgage. However you’ll pay interest on the full amount of your loan throughout the mortgage term, so it’ll cost you more in interest.  The overall cost of an interest only mortgage is higher than if you were on a repayment mortgage.

Need to speak with someone?

You can speak to us if you need help or have any concerns about repaying your mortgage.

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Call us on 0800 092 0227.

Mon-Fri 8am-8pm Sat 8am-1pm

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Find out about free, independent services offering advice about Interest only mortgages

You can send us your repayment plan details by using our online Repayment Plan Form. You’ll need to enter your details, including your mortgage account number, along with the details of any of the repayment plans that you have in place.

If you would prefer to speak to us about your plan details then please give us a call.

If you don’t have a repayment plan, or you’re worried yours isn’t on track, telling us earlier means we could help you with more options. Find out more about your options if you don’t currently have a repayment plan in place.

If you have a plan in place, we know things can change over time so keep us updated with whether you’re on track or to ask for our help or advice with repayment options.

Make sure you regularly check your repayment plan will cover what you owe at the end of your mortgage term. You may have to sell your property if you can’t afford to repay your loan.

  1. What can I use as a repayment plan?

    Your repayment plan could be made up from the following options:

    • Endowment policies
    • Stocks and shares
    • Stocks and shares ISA
    • Unit trusts, Open-Ended Investment Companies (OEICs)
    • Investment bonds
    • A pension
    • Sale of a second home

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  2. I have a plan in place. What do I need to do next?

    If you have a plan in place, check it regularly to make sure it’s on track to cover everything you owe. To help you prepare for repaying what you’ve borrowed when your interest only mortgage term is over, you need to tell us about your repayment plan.

    We’ll contact you regularly to ask for these details if we don’t currently hold any for you or to check the details we hold and ask you to confirm they are still in place.

    For example, if you’re using an endowment policy to repay your interest only mortgage, check your policy statements regularly. Amounts expected to pay out on endowment policies have fallen in recent years due to poor stock market performance, so make sure your projected value will cover what you owe.

    If at any point your repayment plan value falls below your interest only balance, call us so we can discuss your options.

    If you intend to sell your mortgaged property to repay what you owe, remember that property prices can go down as well as up. If the value of your property goes down you may not have enough money to repay your loan. It could also take a while to sell your property so you need to plan for this in good time before your mortgage is due to end.

    You need to consider the implications of using your property to repay your mortgage:

    • Will you have enough money left over, once you have repaid your mortgage, to purchase a new home in the area you want to live
    • Your home will need to be sold so that the money from the sale can repay your mortgage at end of term

    If things change and you’d like to update us about your repayment plans, complete our online Repayment Plan Form or give us a call.

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  3. I don't have a plan in place. What do I need to do?

    If you are worried about having no plan in place we’re here to help you. The sooner you let us know, the more options you may have to help repay your mortgage. Speak to one of our mortgage specialists today on 0800 092 0227. Lines are open 8am-8pm Monday to Friday and 8am-1pm Saturday.

    If you don’t have a repayment plan or you think it might not be on track, your options could include:

    • Switching some or all of your outstanding mortgage balance to a repayment mortgage
    • Setting up a new investment, such as an endowment policy
    • Making regular or lump sum overpayments

    There may be other ways you can repay your mortgage depending on your circumstances so call us to talk through your options.

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Why have I received a letter or email about my Interest only mortgage?

We know that circumstances can change from when you first took out your mortgage, so we'll write to you regularly to remind you to check your repayment plan is on track. We’ll also ask you to contact us to advise us of your repayment plan details if we don't hold any for you, which you can do by post, phone or using our online form. We may contact you in other ways to make sure you know we're here to support you.

Can I opt out of receiving these letters or emails?

No, we send these to make sure we’re doing our best to help you repay your mortgage. This means we need to get in touch with you regularly to:

  • Check we have the right details about your repayment plans
  • Ask you to tell us if your repayment plans have changed
  • Remind you how to call us if you need to

If you’re worried about paying back the amount you owe, give us a call so we can discuss all the options you might have so you can decide what’s best for you. Your options may include:

  1. Transferring all or part of your mortgage to repayment

    By switching to repayment over the remaining term you’ll reduce your mortgage balance by increasing your monthly payments. Each month, your payment goes towards reducing the amount you owe as well as paying off the interest. This means that each month you're paying off a small part of your loan. Providing you keep up with your monthly repayments your mortgage will be repaid at the end of your term. We’ll look at your income and monthly outgoings to see if repayment is an affordable option for you.

    If not, a part interest only and part repayment mortgage might be a more affordable option. You won't pay off your entire loan by the end of your term with this option but you'll reduce the final balance that you owe. This can be a good choice if you have a potential shortfall in your repayment plan, as the final lump sum that you need to pay off your mortgage will be less.

    For example, if your mortgage is £100,000 and your repayment plan is worth £85,000, this means that you will need to switch £15,000 to repayment to make sure the full balance is repaid.

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  2. Selling your home

    You could choose to pay off your mortgage at the end of term by selling your property. However, if you want to stay in your current home then this isn’t the right option for you. If you are planning to move to a new home, then consider whether you have enough equity left over to buy a new property in your area - equity is the amount of money you’ll have from the sale of your property, after you’ve paid the final mortgage amount.

    You’ll need to make sure that the sale of your property will repay everything you owe. This means you should start to market your property around 6-12 months before the end of your mortgage to make sure the sale completes in time. The timing will depend on how quickly houses are selling in your area.

    Please remember that it could take longer to sell your property than you think. You’ll need to keep a close eye on the housing market in your area so that you know when to start trying to sell your property. If your property hasn’t sold at the end of your mortgage term, you’ll need call us to talk about your options.

    Property prices may have changed, or your circumstances may have changed since you decided to use your property to repay your interest only mortgage. If they have and you want to review your options please contact us as soon as you can.

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  3. Making overpayments

    When you make overpayments on your mortgage, you’ll reduce the amount you owe and the interest you pay on your mortgage because we calculate interest on the reduced balance. You may pay back your loan more quickly but you’ll need to tell us if you would like us to use your overpayment to reduce your mortgage term. If you do this, it means you’ll reduce the final amount you’ll need to pay back your mortgage.

    Use our overpayment calculator to see how making overpayments could reduce the amount you owe.

    Sometimes you may need to pay an Early Repayment Charge so check if this applies to your mortgage. You can find out about this in your original mortgage offer terms and conditions, on your mortgage statement or by calling us.

    If you want to discuss your options for repaying your mortgage or to find out how making overpayments could help you, then give us a call on 0800 092 0227. Lines are open 8am-8pm Monday to Friday and 8am-1pm Saturday.

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If you get in touch with us to discuss your mortgage options, we may need to book you in for a Mortgage Review. It’s free, and we’ll talk through your current mortgage term and repayment plan to check that it’s still the right mortgage option for you.

You can book a time that’s best for you with one of our Mortgage Review team by calling us on 0808 145 0378. Lines are open 8am-8pm Monday to Friday, and 8am-1pm Saturday.

What information do I need for my Mortgage Review?

It’ll normally take about 2 hours to talk through your circumstances and mortgage needs. To help make sure your mortgage is affordable for you, you’ll need to have the following details ready:

  • Your annual income - this includes your salary, guaranteed bonus, any overtime and other income such as a state pension or benefits.
  • Your annual and monthly expenditure – this includes bills like council tax and utilities, and you may find your bank statement handy to check what Direct Debits you make.
  • If you’re self-employed or you receive income from a mortgage-free property you’ll need your last 3 years earnings. You can find this on your SA302 forms and your Tax Year Overviews from HM Revenue & Customs (HMRC). You can ask for these documents by calling the HMRC self-assessment Helpline on 0300 200 3310, or by visiting www.gov.uk/log-in-register-hmrc-online-services
  • If you receive a state pension, your latest full months’ bank statement, or benefit award letter dated within the last 12 months
  • If you receive a private pension, your latest pension P60, pension statement or pension payslip
  • Details about any money you owe, such as credit cards, personal loans and other mortgage balances and payments. You can find this information on your statements.

If you'll be talking to us about a joint mortgage, everyone named on it must agree to any change. To ensure we can gain consent for the review to be managed by one person, everyone named on the mortgage will need to be available at the start of the Mortgage Review call.

We’ll write to you in the last 12 months of your mortgage to remind you that it’s coming to the end of its term. You’ll need to repay any outstanding balance by your end of term date.

This means checking that the money in your repayment plan will be available to you by the date your mortgage ends. If you’re concerned about repaying at the end of your mortgage term, please call us as soon as you can.

Please read our frequently asked questions on what to do when your mortgage is coming to an end:

1. When does my repayment plan need to be ready?

2. I'm going to sell my property to repay the outstanding mortgage balance on it. What do I need to do, and by when?

3. My repayment plan funds are ready. How do I make my final repayment?

4. What if my repayment plan end date doesn’t match my mortgage term end date?

5. What if I want a new interest only mortgage?

 

1. When does my repayment plan need to be ready?

The funds from your repayment plan need to be available by the end of your mortgage term date, so that the balance can be paid in full when your mortgage ends. You can repay your mortgage balance at any time before this, but check if your mortgage terms mean you’ll need to pay an Early Repayment Charge.

You should call us for a final repayment quote on 0345 727 3747 if you’d like to pay your mortgage back early. Lines are open 8am-8pm Monday to Friday and 8am-1pm Saturday.

2. I’m going to sell my property to repay the outstanding mortgage balance on it. What do I need to do, and by when?

You’ll need to make sure your property is sold before the term expires on your mortgage. If this isn’t possible, call us so that we can discuss your options with you.

You can find out more about repaying your mortgage with the sale of your property in the ‘what are my options’ section above.

3. My repayment plan funds are ready. How do I make my final repayment?

Please call us on 0345 727 3747 for your final repayment quote. We’ll also let you know how to make your final repayment. Lines are open 8am-8pm Monday to Friday and 8am-1pm Saturday.

4. What if my repayment plan end date doesn’t match my mortgage term end date?

We'll need to discuss your options with you. Please call us on 0345 727 3747 as soon as possible. Lines are open 8am-8pm Monday to Friday and 8am-1pm Saturday.

5. What if I want a new interest only mortgage?

If you’d like a new interest only mortgage, or want to borrow more money on an interest only term then you’ll need to give us a call us to discuss your options. Please note, you’ll need to have at least one repayment plan, from the table below, to cover the full mortgage balance.

So that we can accept your plan, we’ll review information about your repayment plan to check that it meets the required conditions. You can find some of these details in the table below:

Repayment plan Information we’ll need you to give usWhat you need to know
Endowment policies A copy of the latest projection statement, dates within the last 12 months. Endowment companies will present three growth rates. We allow up to 100% of the projected amount using the middle growth rate figure.
Stocks and shares A copy of share certificates, nominee account statement or confirmation from a recognised broker containing evidence of share-holdings and their valuation.




We'll accept up to 80% of the latest valuation of the stocks and shares, ISA, OEIC or investment bond (as long as the latest valuation is greater than £50,000).
Stocks and shares ISA A copy of latest statement, dated within the last 12 months.
Unit trusts, open-ended investment companies (OEICs) A copy of latest statement, dated within the last 12 months.
Investment bonds A copy of latest statement, dated within the last 12 months.
Pension A copy of latest projection statement, dated within the last 12 months. For the purpose of backing an interest only mortgage, we can use a maximum of 15% of the latest projected value (as long as this projection is greater than £400,000).
Sale of second home Property details, confirmation of ownership, evidence of the amount of any mortgage debt. We'll check the ownership of the property and assess its value. We'll deduct any amount you owe that’s secured against the property and allow you to use up to 80% of the amount left over (as long as this is over £50,000).

You can speak to us if you need help or have any concerns about repaying your mortgage.

Call our mortgage specialists on 0800 092 0227. Lines are open 8am-8pm Monday to Friday and 8am-1pm Saturday.

You can find details of free, independent services who can offer advice about Interest only mortgages below:

Money Advice Service www.moneyadviceservice.org.uk

Citizens Advice www.citizensadvice.org.uk

Step Change Debt Charity www.stepchange.org

If you want to discuss your financial circumstances you can also speak to an independent Financial Advisor. You can find a list of these at www.unbiased.co.uk.

Manage your mortgage online

If you haven’t already, you can register for Internet Banking to view and manage your mortgage online. You can check your mortgage details and see your annual mortgage statement.