How can I pay off an interest-only mortgage that's ending?

Remember that interest-only mortgage you took out a while ago? Well if the end date is round the corner, you may be wondering how you’re going to pay off the outstanding debt. In this article, Saga Mortgages, provided by Tembo, will walk you through all the ways you could pay off your interest-only mortgage. To find out which option is best for you, get a personalised recommendation when you create a free plan.

How can I pay off an interest-only mortgage that's ending?

1. Pay off some of your loan beforehand

If you’re a few years away from your mortgage term ending, you may be able to make overpayments on your loan to chip away at your debt. You could use cash savings, investments, pensions or other assets like selling second properties to pay off some of your loan.

However, lenders typically limit the amount you can overpay to a percentage of the outstanding loan, normally 10% of the remaining balance. You also need to make sure you are not depleting your funds too much, as you’ll need enough in your pension pot to fund your later years.

2. Set up a repayment plan

If you do have cash savings or investments but don’t want to use them all in one go, you could set up a repayment plan that outlines how you’re going to pay your debt off gradually. Keep in mind that this option will need to be approved by your lender, and you will also need to prove how you are going to pay it off (i.e. where is the money coming from).

Need to know: You are responsible for putting together a realistic repayment plan and ensuring you stick to it. Don’t include speculative figures like potential property price growth in your plan, as this isn’t guaranteed.

3. Switch to a capital repayment set up

If you’re a few years away from your mortgage term ending, another option you could look at is switching to an interest and capital repayment set up. This will cause your monthly costs to increase, but will allow you to chip away at your outstanding mortgage debt each month. At the end of the mortgage term, you would then have a smaller amount left to pay, making it much more manageable.

If your current lender isn’t open to you making the switch, consider remortgaging to a new lender instead.

4. Remortgage your property

If you’ve been in your home for a long time, the likelihood is your property will have appreciated in value. If you remortgage onto a new deal, you could increase your borrowing to release money built up in your home. These funds can then be used to pay off your interest-only mortgage.

You could use an equity release scheme to release funds from your home too, but this may not be the best choice for everyone. Read our guide on the alternatives to equity release to see what other options are out there.

5. Downsize

If you don’t have sufficient assets to cover the outstanding mortgage debt, you could consider downsizing to a smaller home. Moving to a less expensive property will allow you to use the proceeds from the sale of your current home to potentially clear your outstanding debt. If you have enough money left over, you might even be able to buy your new home outright, allowing you to live mortgage-free!

6. Extend the mortgage term

Your mortgage term length will have been determined when you originally took out the loan, normally 25 years. If you meet the lender’s age and affordability requirements, you may be able to extend your mortgage term by 10 or 15 years. This could give you more time to sort out repaying the outstanding balance.

7. Consider later life lending options

If you want to switch to a new mortgage deal but are finding your age is preventing you from passing lender’s eligibility criteria, it might be worth considering retirement mortgages. For example, a Retirement Interest-Only mortgage (also called a RIO mortgage), is designed specifically with older borrowers in mind, allowing those aged 55 or older to borrow into retirement.

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Important

Your home may be repossessed if you fail to repay your mortgage. Saga Money may receive payment from Tembo if you get a mortgage offer via the Saga Mortgages service. This will not affect the amount you pay for the service.

Saga is a registered trading name of Saga Personal Finance Limited, which is registered in England and Wales (company number 3023493). Registered office 3 Pancras Square, London, N1C 4AG. Saga Personal Finance Limited is authorised and regulated by the Financial Conduct Authority under the registration number 178922.

Tembo Money Limited (12631312) is a company registered in England and Wales with its registered office at 18 Crucifix Lane, London, SE1 3JW. Tembo is authorised and regulated by the Financial Conduct Authority under the registration number 952652. Tembo Money was awarded Best Mortgage Broker at the British bank awards in 2022, 2023 and 2024.