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How to Switch from Interest Only to a Repayment Mortgage

By Kristian Derrick

Last Reviewed: 31st August 2023

Are you on an interest-only mortgage and are considering switching to a repayment mortgage?

The process can be straightforward with the right planning and guidance, and most lenders will be happy to let you switch.

Here’s everything you need to know about switching to a repayment mortgage and why it may be right for you.

Why Switch To A Repayment Mortgage?

Switching from an interest-only mortgage can be the right move for various reasons.

These include:

  • Easier mortgage management – With a repayment mortgage, you’ll have a clear plan on the amount you need to pay each month, making your debt more manageable.
  • Less worry – An interest-only mortgage requires a solid repayment strategy to repay the borrowed capital in one lump sum at the end of the term. If it fails or circumstances change, you may have to sell your house to pay off the mortgage. With a repayment mortgage, you’ll reduce the balance monthly, so you don’t have to worry about a huge lump sum.
  • Full ownership at the end of the term – With a repayment mortgage, you increase your equity in the property every month, and by the end of the term, you’ll own the property outright without selling your house or using other investments to pay the lump sum.
  • Less Interest – Since you’re reducing the debt balance monthly with a repayment mortgage, you’ll pay less interest overall than an interest-only mortgage, where the balance remains the same throughout the mortgage term.

Ways to Switch from An Interest Only Mortgage

You can switch to a repayment mortgage through various methods, and the right one for you will depend on your situation.

These include:

Remortgaging

You can remortgage and switch your repayment type with your existing or new lender.

Your lender may even allow you to keep the same deal and interest rate, or you can get a better deal with a new provider.

However, some lenders may not allow you to remortgage on interest-only, so you may need to shop around before your fixed-term ends.

Remortgaging usually requires a full application, so you must meet the lender’s eligibility criteria.

Product Transfer

You can also do a product transfer with your current provider and switch to a repayment mortgage.

It’s an easy option, but it may not be the most suitable choice, so it’s worth shopping around and comparing what your lender offers with what is available in the market.

A Part-to-Part Mortgage

If you can’t switch the entire mortgage to a repayment mortgage, you can try changing part of it with your current lender or a new one.

It’s usually a combination of interest-only and repayment that allows you to manage your monthly repayments easily while reducing the balance, so you don’t have a huge lump sum at the end of the interest-only term.

You can also increase the repayment portion of the loan when remortgaging to reduce your balance and long-term cost further.

Related quick help remortgage guides: 

How to Switch from Interest Only to Repayment Mortgage

You can switch to a repayment mortgage through the following steps;

Speak to Your Lender

Ask your current lender about their requirements and procedure for switching from an interest-only to a repayment mortgage.

Some providers have specific procedures, fees, or criteria you must meet before they allow you to switch.

They’ll likely check your affordability and require you to sign some documents to make the switch official.

Contact a Mortgage Advisor or Broker

An independent mortgage advisor or broker can search the entire market for the best deals and tell you if switching with a different lender can save you money.

They can be useful if your current lender doesn’t allow you to switch, or they want you to take out a new mortgage instead of only switching the payment type.

Considerations when Switching

A few things you’ll want to consider when switching include:

Affordability

Your monthly repayments will likely increase after switching because you’ll start repaying a portion of the capital and interest instead of interest only.

You’ll need to review your current financial situation and determine whether you can afford the higher monthly payments or a repayment mortgage.

The lender will conduct some checks to determine your affordability, including looking at your income, expenses, and overall debt levels.

Your Current Deal

Depending on the terms of your current deal, your lender may not simply let you switch and may want you to take out a new mortgage instead.

This may force you to leave your current mortgage early, resulting in early repayment charges that can add up to thousands of pounds.

Credit Issues

If you’ve recently had a rough patch and are facing credit issues, switching to a new deal may be challenging, especially if the issues involve late mortgage payments.

The severity, recency, and type of credit issues may determine how difficult it is to switch, with issues like bankruptcy being more severe than a small CCJ.

Equity Amount

The property value can influence your equity in the property since the mortgage balance will be the same as when you took out the interest-only mortgage, which can influence your chances of switching.

You may find yourself in negative equity if the property has fallen in value, making it difficult to switch or remortgage.

However, if it has increased in value, you’ll be better positioned to switch and unlock better rates and terms.

Changes in Rates and Flexibility

You may end up with different rates after switching, which can be lowered or higher than your current mortgage rates.

When you switch, you’ll also have less flexibility to do what you want with your money in the short term, since you’re no longer saving on monthly repayments.

Switching From An Interest Only To A Repayment Mortgage Final Thoughts

Changing to a repayment mortgage from an interest-only mortgage is usually straightforward.

It can allow easier mortgage management, less overall interest, full ownership at the end of the term, and less worry about paying the lump sum if your repayment strategy fails.

Consider all the factors and implications of switching and consult an independent mortgage advisor or broker who can ensure you get the best deal available.

Call us today on 01925 906 210 or contact us to speak to one of our friendly advisors.

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