Paying back interest-only home loans

Pat Hutchinson MBE.
Pat Hutchinson MBE.
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Q. I have an interest-only mortgage and do not have enough savings to pay back the original capital at the end of the mortgage term. What can I do?

If you have an interest-only mortgage, your monthly payments to your lender only go towards repaying the interest charged on the original loan. You are not paying off the money you originally borrowed (the capital). At the end of the mortgage you have to pay the lender back the capital sum.

This is different from a repayment mortgage where each month you pay interest but also a little bit of the capital originally borrowed.

Interest-only mortgages are therefore a lot cheaper, but you need to plan how you are going to pay back the original capital sum borrowed at the end of the term.

At the end of the mortgage term, you will have to either find the money to pay off the capital sum you borrowed, or sell your home; or risk having your home repossessed.

If you took out your mortgage a long time ago, you may have taken out an endowment policy at the same time. In this case, along with the monthly interest payments to your lender you also pay an amount into the endowment policy, so that the endowment policy would pay off the capital sum at the end of the mortgage.

Many endowment policies at maturity will not cover the cost of the mortgage. Or you may have cashed in your endowment policy early .

If you have not saved enough to pay back the original capital at the end of the term, then you need to take action if you wish to remain in the property.

Speak to your mortgage lender as soon as possible. Although the repayment of the capital at the end of mortgage term is a contractual requirement and mortgage lenders are not obliged to offer you options, the Financial Conduct Authority (the regulator) has said your mortgage lender should help you if they can.

Seek independent advice. Find out what options are available to you. You can do this by contacting your local Citizens Advice Bureau. Or contact Housing Rights Service a free independent mortgage debt service on behalf of the Department for Social Development.

•Although switching to a repayment vehicle is the ideal option, you may not be able to do this as your monthly payments will need to increase substantially.

However, if you can increase your payments even by a little bit, this can help reduce the capital owing at the end of the term

•Look at remortgaging to a cheaper deal

Get free, confidential and independent advice from your nearest Citizens Advice–

go to or www.citizensadvice.org.uk/nireland call at: Citizens Advice

Newtownabbey, Dunanney Centre, Rathmullan Drive, Rathcoole, Newtownabbey,

BT37 9DQ. Telephone advice is available 9am – 4pm each day 028 90852271-

Lunch 1:00 - 1:30pm, email advice is available on

enewtownabbey@citizensadvice.co.uk or contact Housing Rights Service on 0300 32 30 310, or visit http://www.housingrights.org.uk