An interest-only mortgage means you only pay the interest charges each month, not the capital. As a result, monthly payments are lower than a repayment mortgage. That might sound all well and good, but when the term ends you’ll need to pay back the full loan amount in one go.
As your interest-only mortgage end date approaches, you might wonder if extending the term is possible. The good news is that many lenders will consider extensions, though the process isn’t always straightforward.
Can you extend an interest-only mortgage?
Yes, extending an interest-only mortgage is possible, but whether you’re approved or not depends on several factors.
Your lender’s policies are important here, and some readily offer extensions while others may be reluctant.
Your age plays an important role in the decision too. Many lenders have maximum age limits, typically 70 to 85 years old, by which the mortgage must be fully repaid. If extending would push beyond this limit, you might face rejection.
The amount of equity in your property is another consideration. Most lenders require at least 25% to 40% equity before considering an extension. If you have more equity, you stand a better chance of approval.
Your income and ability to continue making payments will be reassessed. Lenders need to feel confident you can afford the interest payments throughout the extended term, especially if you’re nearing retirement.
How to request an extension
Contact your mortgage provider well before your term ends and ideally at least a year in advance. This gives you time to explore options if your initial request is declined.
You’ll need to present a credible repayment strategy showing how you’ll eventually clear the debt. For example, you might use investment maturity dates, pension lump sums or plans to sell the property in the future.
If you’ve already retired or will retire during the extended term, the lender will assess your pension and other income sources to ensure affordability.
Alternatives if an extension isn’t possible
If your current lender refuses to extend your interest-only term, you still have options:
Remortgaging
Remortgaging with a different lender might be possible. Some banks specialise in later-life lending and may offer more flexible terms than mainstream lenders.
Over 55s
For borrowers over 55, a Retirement Interest-Only (RIO) mortgage could be suitable. These have no fixed end date, and the loan is repaid when you die or move into long-term care. You’ll still need to prove you can afford the monthly interest payments.
Downsizing
Downsizing to a smaller property is often an option. Selling your current home could clear the mortgage debt and potentially leave enough money to buy a smaller property outright.
Property Rescue
If you need help downsizing, Property Rescue can purchase your property, exchanging contracts in as little as 48 hours. We cover all the costs, including legal fees and offer a speed and certainty not found on the traditional market. Selling a property is the easiest way to deal with lenders who wont play ball.
Equity release
Equity release schemes allow homeowners aged 55 and over to access their property wealth while continuing to live in their homes. The loan and accumulated interest are repaid from the sale of your property when you die or move into care.
Steps you can take right now
If you’re concerned about your interest-only mortgage ending:
- Contact your lender immediately to discuss extension possibilities. Don’t wait until the last minute when your options become limited.
- Speak with an independent mortgage broker who can advise on alternatives if your current lender refuses an extension.
- Consider whether staying in your current home is the best option. For many people, selling offers a clean solution that removes mortgage debt entirely.
- Get financial advice to help weigh up the pros and cons of different approaches based on your specific circumstances.
Remember that Property Rescue can provide a quick, no-obligation quote if selling becomes your preferred option. Acting early gives you control over the situation rather than facing forced decisions as the deadline approaches.