Author Paul Murphy

Updated February 2023 

Thousands of people a year are repaying their existing interest only mortgages with later life mortgages, could you?

When your mortgage term is ending, your current mortgage lender will require a repayment plan. Assuming there are no repayment methods available, firstly, they will discuss the option of converting your lending to a repayment mortgage, however this option can prove expensive compared with interest mortgage payments.

Secondly, mortgage lenders will ask you whether you have considered downsizing, and thirdly they may suggest considering a later life mortgage, such as a lifetime mortgage.

My mortgage interest rate is increasing, what are my options?

If your current interest rate has being increasing this means you are either on a tracker type mortgage which is linked to the bank of England base rate, or you are on the lenders ‘Standard Variable Rate’. If your mortgage is becoming unaffordable due to the rate increases you may be able to remortgage onto a more suitable solution.

Fixed interest rates are available however these may still be too high to solve the issue of higher monthly payments due to the market conditions.

Another option to consider is a later life, or lifetime mortgage. These have voluntary repayment options, which means you can choose how much interest you repay to the mortgage each month, or allow the interest to be ‘rolled up’ and settled when the property is eventually sold, on a lifetime term basis.

Having the option to pay a lower amount of interest on a more flexible plan can help reduce the pressure on your finances, especially whilst the cost of living is increasing.

The downsize to paying no interest to the mortgage each month in the interest will be added onto the mortgage, however you still have the option to make repayments to reduce this effect.

If you are not overly concerned about preserving your equity for an inheritance, you can opt to allow the interest to be ‘rolled up’ and repaid at the end of your lifetime.

How does equity release work if you still have a mortgage?

An Equity release lifetime mortgage can be used to repay your existing mortgage and any secured lending. As the mortgage is the first legal charge, your solicitor will repay this from the equity release funds raised and any remaining funds will be paid to your bank account to utilise as required.

If you still have a mortgage, equity release can be used to repay an existing mortgage and any secured lending.

Your solicitor will repay your current mortgage lender from the equity release funds raised and any remaining funds will be paid to your bank account to utilise as required. Any debt not secured on your home can be repaid separately, once you have the money in your bank account.

When the property is eventually sold and the lifetime mortgage is settled, any remaining balance would go to your estate for inheritance purposes.

Your equity release adviser will explain this in greater detail and discuss the best way to arrange the equity release scheme based on your specific circumstances and objectives.

Equity release lifetime mortgages are regulated by the financial conduct authority for your protection.

Why do people still have interest-only mortgages?

Many of the interest only mortgages were mis sold. Interest only mortgages were very popular in the 1990’s, when the repayment vehicle (normally an endowment policy), designed to repay the loan at the end of an interest mortgage term were not suitable.

The financial ombudsman now receives many complaints about interest only mortgages being mis sold.

With this type of mortgage, you only pay the interest due on the amount you borrowed each month, and repay the capital loan at the end of the mortgage term.

Many people who were offered interest only mortgages from their current lender had no means of paying back the capital at the end of the term, as the repayment vehicles- known as endowment policies, were not fit for purpose in many cases, creating a shortfall. A repayment mortgage reduces the capital balance over the term.

What are my options at the end of an interest only mortgage?

If your existing lender will not extend your mortgage term and you do not want to move to a smaller property, mortgages for the over 60s are a viable option to consider.

At the end of your interest only mortgage term your lender may extend your current mortgage term. They may allow this over a short timeframe.

If you cannot repay the mortgage from any savings or other assets, you could either convert to a repayment mortgage, downsize and move home or consider a later life mortgage, such as a lifetime mortgage, which are special mortgages for pensioners.

If a repayment vehicle to settle the outstanding balance repayment mortgages is not suitable based on your income and lending restrictions, you may wish to consider a lifetime mortgage or retirement mortgage.

Many homeowners ask the question about what happens if I can’t pay off my interest only mortgage at the end of an interest rate term when the mortgage is due to be settled. Mortgages for the over 55s and pensioners are becoming more flexible and can provide a viable solution.

An alternative solution to repay the capital loan over time are repayment mortgages, however these can have high monthly payments when arranged over a shorter timeframe due to age limitations from the banks and building societies on the new mortgage loan , which are often unsuitable for people in retirement, based on income checks and state pension income.

New lender options with later life lenders and mortgages can also be considered, which provide more flexibility for homeowners looking for a new mortgage. Monthly repayments are more flexible with later life mortgage loans and can make a real difference to monthly affordability compared with a repayment mortgage.

What if I can’t pay off my interest only mortgage balance?

At the end of your interest only mortgage term you can ask your lender to extend your current borrowing. They may allow this over a short timeframe.

If you cannot repay the mortgage from any savings or other assets, you could either convert to a repayment mortgage, downsize and move home or consider a later life mortgage, such as a lifetime mortgage or retirement mortgage.

If there is sufficient equity in your home, a new lender offering a suitable solution could enable you to remortgage and settle your current lending.

How a broker can help you choose the right solution

Lifetime & retirement mortgage brokers have access to a range of plans available for over 55 homeowners which can be considered to settle your existing mortgage with your current lender. There are later life home loans that still allow monthly payments to be made.

Dealing with a specialist broker provides access to a wider scope of options where your lender may not be able to assist, as many lenders do not offer lifetime mortgages.

A financial adviser can review your options and establish if you have enough equity to enable a new plan to be arranged.

Many brokers have access to preferential interest rates and terms. Ensure your broker is fully authorised by the financial conduct authority.

Can you get equity release on an interest-only mortgage?

Yes, you can get equity release when your interest-only mortgage term is coming to an end. If you need funds to repay the outstanding balance, you can release equity from your home for this.

You will need to have sufficient equity in your home to repay your initial interest only mortgage, and you may also be able to raise additional funds for any other objectives you may have, such as repaying debts, home improvements or to supplement your income.

Can you remortgage at the end of an interest-only mortgage?

You can remortgage at the end of an interest only mortgage. If you are over 55 you may be able to raise money against your home with mortgages for the over 60s, or a pensioner mortgage, which come under the lifetime mortgage category.

I’m not ready to downsize, what are my options?

If a repayment vehicle to settle the outstanding balance repayment mortgages is not suitable based on your income and lending restrictions, you may wish to consider a lifetime mortgage or retirement mortgage.

Will my home be repossessed if I can’t repay my mortgage?

Your lender will only normally take repossession action if you are in arrears and are not making any attempt to rectify this.

If you don’t do this, your mortgage lender will could begin court action. This is called possession action, which could lead to you losing your home.

It is important to communicate with your lender and explain your circumstances, as they may grant you an extension on the term, to give you time to downsize or arrange a new mortgage.

Is my property acceptable for a lifetime mortgage?

If your property is standard construction (brick/stone built with a pitched roof) this is normally acceptable for a mortgage lender for lifetime mortgages.

I have poor credit history, will I get a new mortgage?

If you are over 55 and have a credit file with a history of arrears or defaults you may still be able to arrange a new mortgage.

The citizens advice bureau can provide access to debt counselling. A lifetime mortgage adviser with a reputable broker will explain your range of options based on your circumstances and property information.

Options for homeowners when your interest only mortgage reaches the end of its term

Many homeowners ask the question about what happens I can’t pay off my interest only mortgage at the end of an interest rate term when the mortgage is due to be settled.

The alternative solution to repay the capital loan over time are repayment mortgages, however these can have high monthly payments when arranged over a shorter timeframe due to age limitations from the banks and building societies on the new mortgage loan , which are often unsuitable for people in retirement based on income checks and state pension income.

New lender options with later life lenders and mortgages can also be considered, which provide more flexibility for homeowners looking for a new mortgage. Monthly repayments are more flexible with later life mortgage loans and can make a real difference to monthly affordability compared with a repayment mortgage.

Mortgages for pensioners are becoming more flexible and can provide a viable solution.

What’s the mortgage application process?

Obtaining the right advice is crucial to find the best lender to meet your requirements and repay your mortgage. A good adviser will consider other investments, means tested benefits and property criteria to find your most suitable solution.

Mortgages for pensioners are becoming more flexible and can provide a viable solution.

A valuation of your home is required to confirm the property price, and solicitors are also involved for the legal aspect of settling your existing loan.

The new lender will obtain a redemption statement from your old and and pay off the mortgage.

Repaying other debts with equity release

Most lenders will allow you to consolidate debts when you remortgage your existing capital sum owing to a new lender. The original loan amount plus any debts will be taken into account and the interest rate will be based on the percentage of lending required against the property value.

Can you Pay off your interest with a later life mortgage?

Expert financial advisers will provide you with an illustration of your interest rate and equivalent monthly interest payment required to ensure the loan amount does not accumulate with compound interest.

Payments can be made via a monthly automated payment with most lenders. This will ensure the capital balance does not increase with regular monthly payments.

When is a lifetime mortgage repaid, and how?

The mortgage balance is repayable when you die or go into care, and in the case of joint mortgages the mortgage is payable when the last survivor leaves the property, which is sold and the balance settled. On first death, the mortgage continues until the house is eventually sold on last death, or going into long term care.

How long is the later life mortgage interest rate fixed for?

Lifetime mortgages offer a fixed rate for life. This long term security is ideal in retirement years for certainty the interest rate will not increase.

Equity release lenders who are members of the equity release council also provide a negative equity guarantee that you will never owe more equity than you have in your home if the property price does not increase over time.

What happens if you can’t pay off your mortgage at the end of the term?

Many homeowners ask what if i can’t pay off my interest only mortgage?

If savings or assets to settle the outstanding mortgage, or a repayment mortgage is not suitable based on your income, age or lending restrictions, you may wish to consider an equity release lifetime mortgage or retirement mortgage to repay your interest only mortgage.

An expert later life finance adviser can fully explain your options based on your circumstances, objectives and priorities.

Mortgages for pensioners are becoming more flexible and provide a viable solution.

Can equity release be used to pay off an interest-only mortgage?

Equity release is becoming popular for repaying existing mortgages if downsizing isn’t preferable or assets/savings are not available to repay the capital balance.

The mortgage lending rules on these mortgages were tightened up in 2012. But many people took these mortgages out before then and are coming to the end of their mortgage term with no way of paying the mortgage back.

That makes it important to understand what happens at the end of your mortgage term and what other options are available, one of which is equity release.

If you have an interest-only mortgage your lender will eventually write to you requesting you arrange a mortgage repayment strategy.

Many people are settled in their homes and do not wish to downsize. There can often be a large lump sum to repay. This can cause stress and worry that the mortgage cannot be repaid. 

We can save you money with exclusive plans through our independent equity release advisers who have highly rated equity release reviews across the industry

What Happens When Your Interest Only Mortgage Ends?

When your interest only mortgage is ending it can seem daunting however there are lots of options available to you.

If you need to remortgage to a more flexible solution Compare My Equity can provide a comparison service and put you in touch with an expert to answer your mortgage questions.

Lifetime mortgages enable you to unlock the wealth that has gradually built-up as house prices have increased over the past few decades, making your home a financial asset.

Whether you wish to extend your mortgage term or raise cash to help live the retirement you deserve, lifetime mortgage plans provide a greater range of options then traditional mortgages and can be arranged on an interest only basis, to maintain control of the equity released.

If you are concerned about your interest only mortgage and what happens at the end, you have many options. 

Importantly, since this equity can be taken out tax-free, the mortgages provide an attractive & economical method of raising cash to enjoy and enhance your quality of life with a cash injection using a lifetime mortgage. 

What Happens When My Interest Only Mortgage Ends, What if I can’t pay off my interest only mortgage?

 At the end of your mortgage term you can ask your lender to extend your current mortgage term. If you cannot repay the mortgage and have discounted downsizing to repay your mortgage, you could either convert to a repayment mortgage or consider a later life mortgage, such as an equity release lifetime mortgage or retirement mortgage.

Understanding all your options is important to ensure you find the most suitable mortgage solution for your objectives.

 Whether you wish to extend your mortgage term or raise cash to help live the retirement you deserve, mortgages for the over 60’s including lifetime mortgage plans provide a greater range of options then traditional mortgages and can be arranged on an interest only basis, to maintain control of the equity released.

Accessing expert advice

Later Life Finance search all providers to find your best interest only lifetime mortgage deal and assist with answering all your questions and providing advice. 

You can continue to enjoy your home in the years to come, whether you choose to make payments or not. 

You retain full home ownership & security for life. We help you find the best lifetime mortgage provider and plan, and we have access to all lenders to secure your best deal.