What if I cannot pay off my interest-only mortgage?

With an interest-only mortgage you only pay the interest each month, so the original loan never reduces. At the end of the mortgage term you will still owe the original amount you borrowed and must repay this in full¹. That is the whole point of the arrangement, and it is also the trap: the full amount is paid back at the end of the mortgage term in one lump sum².

If that lump sum is not there, the lender has the legal right to repossess your home². But repossession is not automatic and it is not immediate. Your lender cannot ask for the money back until your mortgage term ends³, which means there is usually time to agree a solution. Lenders expect borrowers in this position to get in touch, and there are several routes open: switching to a repayment mortgage, extending the term, using savings or overpayments, or selling the property.

This page sets out what happens when an interest-only mortgage matures without a repayment plan, what each option costs, and where to get free, independent help.

The full balance is still owed when the term ends

Interest-only mortgages work differently from repayment mortgages. With interest-only mortgages, borrowers just repay the interest on the mortgage⁶. The original loan amount does not reduce, and a separate plan, sometimes called an exit strategy, is needed to repay the capital at the end of the term⁷. You pay back the interest on a monthly basis and repay the capital at the end of the mortgage term⁸.

That means the balance at the end is not a surprise figure: it is the amount you originally borrowed. At the end of the mortgage term, unless you are making overpayments, you will still owe the original amount borrowed⁹. You will owe the full balance of the money you borrowed when the mortgage ends¹⁰. By the time your mortgage ends, you will need to repay the full interest only balance¹¹.

The risk was always built in. Interest-only mortgages are slightly more risky than repayment ones, because there is no guarantee that the proceeds from the endowment, ISA or other policy will cover the whole sum you borrowed in the first place⁸. Thousands of borrowers have no plan in place for repaying that capital, leaving them with the prospect of selling up and downsizing unless they can remortgage¹².

What happens if I reach the end of my interest-only mortgage and cannot pay?

If the term ends and the capital is not repaid, the lender can act. Under the conditions of your mortgage, lenders will have the legal right to repossess your home if a loan has not been repaid by the end of the term². If you miss your mortgage repayments and cannot agree a repayment plan, your mortgage lender might start court action to repossess your home¹³.

The same principle applies to any borrowing secured on a home. If you cannot repay what you owe, the lender can repossess the house¹⁴. If you cannot afford to pay the mortgage, the mortgage lender (bank or building society) could seek possession of the home, which means they can sell the home and you must leave¹⁵. If you are unable to keep up repayments on your mortgage, your home could be repossessed by your lender¹⁶.

Repossession is a legal process, not an instant eviction, and courts expect lenders to have tried to reach an agreement first. The practical point is that the earlier you talk to your lender, the more options remain. At the end of a 25-year interest-only term on a £300,000 loan, you would need to be able to repay the £300,000 capital you borrowed in the first place, and if you are unable to do that, you may need to sell the property or face the risk of repossession¹⁷.

Your options if you cannot repay the capital

There is no single answer, and the right route depends on your age, your remaining term, your equity and whether you have any savings or investments earmarked for the loan. Lenders set out a common set of options for borrowers without a repayment plan: switch to a capital and interest (repayment) mortgage, use savings to reduce the overall amount, make overpayments, or consider extending the term of your mortgage along with switching to capital and interest repayments¹⁸.

One option that is sometimes suggested, converting to interest-only to free up cash, is not a fix for a maturing loan. Switching to an interest-only mortgage is not a long-term solution: you only pay the interest and must pay the capital before the end of the term²⁰. Some lenders will refuse to allow you to pay interest only if your mortgage is already in arrears²¹.

If you are already behind on payments, the options change. Extending the mortgage term is one of the repayment options used to deal with arrears²², and converting your mortgage to interest-only for a period can help clear arrears²², but neither reduces the capital you owe.

Switching to a repayment mortgage: higher monthly payments

Moving to a repayment mortgage is the most direct way to start clearing the capital. On a repayment mortgage, monthly payments are higher, because you are paying capital and interest²³. Interest-only monthly repayments are lower than on repayment mortgages⁶, which is exactly why the switch costs more each month.

The size of the increase depends on your balance, your rate and how long is left. As an illustration, on a £250,000 interest-only mortgage charging 3% over 25 years, you would repay £625 a month, equating to £187,500 over the term². Under the same terms on a repayment mortgage, you would pay £105,800 in interest, making it £81,700 cheaper than the interest-only mortgage². The repayment route costs more per month but leaves nothing outstanding at the end.

If you switched to interest-only partway through, the jump can feel sharp. Your monthly payments will be higher than before you switched to interest-only, because you have not been paying off any of the mortgage balance during this time¹⁹.

Rates matter as much as the structure. On an example mortgage of £130,000 over 25 years, if the interest rate was 1.5%, the monthly repayment would be about £520, but if the interest rate is 3.5%, the monthly repayment will be £651²⁴. A quarter-point change in the base rate adds £33.94 a month on a £250,000 balance over a 20-year term at 4.5%²⁵.

Extending the term or selling the property

Extending the term buys time. Some lenders can extend interest-only mortgages by up to 20 years⁴. Extending the mortgage term is a recognised repayment option for borrowers who cannot clear the balance²². It does not reduce what you owe, and interest continues to accrue on the outstanding capital, but it spreads the problem over more years and can be combined with a switch to repayment.

Selling is the other route, and for many borrowers it is the realistic one. Thousands of borrowers have no plan in place for repaying that capital, leaving them with the prospect of selling up and downsizing unless they can remortgage¹². Selling clears the loan from the proceeds, though you may need to move to a cheaper property or a different area.

There is a specific warning about relying on a sale. You cannot rely on selling the property to provide this money just in case its value decreases¹³. House prices can fall, and a sale that does not cover the mortgage leaves a shortfall.

For older borrowers there is a distinct product. A retirement interest-only mortgage is an interest-only mortgage which requires the interest accruing under it to be repaid in full over the stated term, entry into which is restricted to older customers above a specified age, and under which the lender is not entitled to seek full repayment of the loan until the occurrence of one or more of the specified life events, unless the customer breaches their contractual obligations⁴. In practice, there is no set end date for the settlement of the loan: it is repaid by selling the house when you either decide to sell, go into long term care or pass away²⁶. The mortgage is normally not repayable until the mortgage holder (or the last survivor if it is a joint application) has died, moved into long term care or moved home and the property is sold²⁷.

Should I contact my lender before the mortgage term ends?

Yes, and the earlier the better. Your lender cannot ask for the money back until your mortgage term ends³, so there is a window in which to agree a solution. Lenders actively ask borrowers to use it. If you have not repaid your interest only balance yet, or do not have enough to repay it in full, you need to call your lender so a solution can be agreed with you²⁸.

The conversation is not a negotiation you have to prepare a case for. Lenders have standard options, and the ones listed above are the ones they will discuss. What matters is that you make contact before the term ends rather than after, because once the term has expired the lender's options narrow and the pressure to recover the debt increases.

If you are struggling with the mortgage payment itself, separate help exists. Support for Mortgage Interest is a loan that can help with mortgage interest, and you do not have to make monthly repayments on the loan²⁹. It cannot help you pay the amount borrowed, insurance policies or mortgage arrears³⁰, and it cannot help you pay for any missed mortgage payments, called mortgage arrears³¹. In Scotland, the Home Owners' Support Fund is available where an independent financial adviser believes you cannot pay the money you owe³².

Where to get free, independent help

Free and impartial help and advice is available from MoneyHelper, StepChange and Citizens Advice, and a list of independent financial advisers is at unbiased.co.uk⁵. The same organisations appear across lender guidance: you can get help and advice from a number of sources, for example, MoneyHelper, Citizens Advice (CAB) and StepChange³³.

There are limits to what each service covers. StepChange cannot help people under 50 find a different mortgage²⁶, though it can still advise on debt. Independent Age runs a free helpline³⁴. Shelter and Shelter Cymru provide housing and mortgage arrears advice, and Advice NI covers housing-related debts in Northern Ireland³³.

If you are considering a route that involves borrowing more, such as remortgaging to release equity, it is worth understanding the cost before committing. Increasing a £180,000 mortgage with 20 years to go at 4.5% to £200,000 to clear £20,000 of debts adds £127 a month and £10,300 in additional interest³⁵. On a £400,000 home with a £100,000 mortgage, a five-year fixed remortgage borrowing an extra £50,000 would take monthly repayments from £916 a month to £2,748, based on the rate checked on 11 February³⁶. Free and impartial help and advice is available from MoneyHelper, StepChange and Citizens Advice, and a list of independent financial advisers is at unbiased.co.uk²⁵.