Switching from interest-only to repayment in later life
Switching interest-only to repayment means each monthly payment covers interest and part of the loan, so the balance falls to zero by the end of the term. Payments rise, sometimes sharply, and your lender will usually check you can afford them in retirement. You can switch all of the loan or only part of it.
This guide is general information, not financial advice.
How switching interest-only to repayment works
On interest-only, your payment covers only the interest charged, so the amount you owe stays the same. On a capital repayment basis, each payment also repays some of the loan. Early payments are mostly interest; later ones clear more of the capital.
You can usually ask your current lender to switch all or part of the mortgage, now or when your deal ends, or move to a new lender through a remortgage. Either way, the lender's criteria apply.
How much your monthly payments could rise
The increase depends on how much you owe, the interest rate and how many years are left. The shorter the remaining term, the bigger the jump, because the loan must be repaid in less time.
As an illustration only, take a £100,000 balance with 15 years left, at an assumed interest rate of 5% a year:
- Interest-only: £100,000 × 5% ÷ 12 = about £417 a month
- Full repayment over 15 years: about £791 a month, roughly 90% more
- Part-and-part (half on each): about £208 interest on £50,000, plus about £395 to repay £50,000, around £604 a month
These figures are not a quote; your own rate, fees and term will change them.
What lenders check
Because payments go up, lenders usually reassess affordability, much like a new application:
- your income now and in retirement, including pensions
- your regular spending and other debts
- your age at the end of the term, as many lenders set a maximum age
- your credit history
If the full switch is not affordable, a lender may suggest a smaller switch, a longer term or a mix of both. Our guide to interest-only term extensions explains how extending can affect payments.
Part-and-part mortgages
A part-and-part mortgage splits the loan. One part is repaid over the term; the other stays interest-only and is due in full at the end. It can soften the payment increase while still reducing what you owe, but you still need a plan for the interest-only portion, such as savings, an endowment or selling. If you have an endowment, see what to do about an endowment shortfall.
Overpayments as an alternative
Rather than switching, some borrowers overpay. Many lenders allow overpayments of up to around 10% of the balance each year without a charge while a deal is running. This reduces what you owe, but it is voluntary, so there is no guarantee the loan is cleared by the end of the term.
Early repayment charges when switching
If you are within a fixed or discounted deal, leaving it early to move to a new product or lender may trigger an early repayment charge (ERC), usually worked out as 1% to 5% of the outstanding balance, though some deals charge a flat fee. Changing the repayment method with your existing lender may not, but check first.
When switching may not fit
Switching can be hard if your retirement income is fixed, little term remains, or higher payments would cause real strain. Other options may be more realistic, including downsizing, equity release or a retirement interest-only (RIO) mortgage. A RIO mortgage only asks for monthly interest, with the loan usually repaid when you die, move into long-term care or sell; see our guide to retirement interest-only mortgages. Equity release has no monthly payments, but interest builds up and reduces your estate; read how equity release works first.
An FCA-regulated mortgage adviser can compare these routes against your income. Our RIO affordability calculator gives an indicative idea of what might be affordable; it is not a quote.
Not sure which option fits your circumstances?
Written and reviewed by the Later Life editorial team. Last updated .
Frequently asked questions
Can I switch only part of my interest-only mortgage to repayment?
Many lenders allow a part-and-part arrangement, where some of the loan stays on interest-only and the rest is repaid over the term. Monthly payments rise by less than with a full switch, but you still need a plan to repay the interest-only part when the term ends. The split you can have depends on the lender and your affordability.
Will my lender check affordability if I switch to repayment?
Usually, yes. Because monthly payments go up, lenders generally check that you can afford the new amount for the rest of the term, including after you retire. They may ask about your income, pensions, spending and other debts. Some lenders may be more flexible if you are only changing the repayment method.
Will I pay an early repayment charge for switching to repayment?
It depends on your deal. Changing the repayment method with your current lender may not trigger a charge, but moving to a new product or lender during a fixed or discounted period often does. Overpaying beyond your annual allowance can also trigger a charge. Your mortgage offer or annual statement should set out any early repayment charges.
Is overpaying the same as switching to repayment?
Not quite. Overpaying means paying extra on top of your normal payment, which reduces the balance but does not change your mortgage type. You can often stop if money becomes tight. Switching to repayment builds capital repayment into every required monthly payment, so it gives more certainty that the loan is cleared but less flexibility.
What if I cannot afford to switch to repayment?
There may be other routes, such as extending the term, using savings to reduce the balance, downsizing, or later-life borrowing such as a retirement interest-only (RIO) mortgage or equity release. Each has different costs and risks. Our guide to what to do when an interest-only mortgage is ending sets out the options.