Switching to a repayment mortgage
The most straightforward option is to switch from interest-only to a capital repayment mortgage. Your monthly payments will increase because you are now paying off the capital as well as the interest, but at the end of the term you will owe nothing.
If your current lender offers a product transfer, this may be the quickest and simplest route. You may not need a full affordability assessment for a product transfer, which can be helpful if your circumstances have changed since you took out the original mortgage.
Alternatively, you can remortgage to a new lender on a repayment basis. This involves a full application and affordability check but gives you access to the whole market. A broker can identify the most competitive deals and ensure the switch is as smooth as possible.
Extending your mortgage term
If switching to repayment would make the monthly payments unaffordable, extending the mortgage term is another option. A longer term means lower monthly payments, though you will pay more interest overall. Some lenders allow terms up to age 75 or beyond.
Not all lenders will agree to extend the term, particularly if you are approaching retirement. If your current lender cannot help, a broker can find alternative lenders with more flexible age and term policies. For older borrowers, an equity release mortgage may also be worth considering as an alternative.
What happens if you cannot repay at the end of the term?
If your mortgage term ends and you cannot repay the capital, your lender will usually try to work with you to find a solution before taking any enforcement action. Options may include extending the term, switching to a repayment basis, or agreeing a plan to sell the property within a reasonable timeframe.
The worst outcome is repossession, but lenders treat this as a last resort. They would much rather find a way for you to repay the debt than go through the cost and time of repossessing and selling the property. The earlier you engage with your lender or a broker about potential difficulties, the more options you will have.
If you are worried about reaching the end of your interest-only term without sufficient funds, seek advice as early as possible. Even if the end date is several years away, starting to plan now can make a significant difference to the options available to you.