There are many homeowners who struggle to make repayments due to the jump in interest rates. If you are one of them, you may be searching for an alternative to selling your home and have likely come across the interest-only mortgage.

Now, interest-only mortgages are not just something you can get when you buy your property. In fact, they are often used by those with existing mortgages as a way to manage their finances and afford their interest rate increases.

If you’re largely unfamiliar with interest-only mortgages, don’t worry. This guide covers the basics of whether or not you can change your mortgage to an interest-only loan.

What is an Interest-Only Mortgage?

If you aren’t 100% clear on what an interest-only mortgage is, then we highly recommend you head over and check out our what is an interest-only mortgage guide. It covers what the interest-only mortgage is, who qualifies, and other useful information you’d need to know if you wanted to remortgage to an interest-only deal, switch temporarily, or even take out a lifetime mortgage.

As for this article, the only thing you need to know about the interest-only mortgage is that it’s a mortgage type that only requires you to pay the interest rate, not the principal. This means you aren’t building up equity in your home, but it can help keep your costs manageable while you’re in a tough financial period.

How Do Interest-Only Mortgages Work?

Before you take out an interest-only mortgage, it’s also very important to be familiar with how an interest-only mortgage works. With that knowledge, you’ll know how to go about either getting an interest-only mortgage or switching to one.

Can You Get Interest-Only Mortgages?

Now that the basics are covered, it’s time to get to the heart of the question. First of all, can you still get interest-only mortgages? It’s true that they were far more popular before the 2008 crash, but that doesn’t mean that they aren’t still available. In fact, you can often get an interest-only mortgage for at least a brief period of time.

Can You Change Your Mortgage to Interest-Only?

Thanks to the government’s Mortgage Charter, you have the right to switch temporarily to an interest-only mortgage for a period of six months. Your lender can, however, deny you if you are significantly behind on mortgage payments or have defaulted on your loan.

In fact, you may find that most lenders are willing to help you out through a bad period by swapping you to an interest-only mortgage. You will, however, need to be upfront about it. This means being proactive about making the switch so that your accounts remain in the black. Negotiate with your current lender first to find out your options. You can also look through interest-only mortgage offers from other lenders if you go through a broker.

Why Switch to an Interest-Only Mortgage?

There are many reasons to switch to an interest-only mortgage:

1. You need to pay for something else (like care services or remodelling) and need lower mortgage payments to afford it.
2. You or your partner have lost your jobs, and you need a lower mortgage payment while you’re job hunting.
3. You want to put the mortgage principal payment towards another savings account or investment opportunity.
4. You’re house flippers who want to pay off the principal all at once with a house sale.
5. You want to take out an equity loan on your home but also want to pay off the interest rather than let it accrue.

Before switching to an interest-only mortgage, it is always important that you have a plan to pay off the principal. You may simply plan on paying the repayment mortgage once it starts up again. Alternatively, you may have a plan to pay off a large chunk of your principal at the end of the interest-only loan period (when you’re on the variable rate).

So long as you have a solid plan, bring it to either your lender or new potential lenders to find out what interest-only mortgage options you have available to you.

Frequently Asked Questions

Can I switch to an interest-only mortgage easily?

Yes, you can. Thanks to the Mortgage Charter, which has provisions that speed through eligibility, you can switch your existing mortgage to an interest-only loan quickly. This is because there’s no affordability assessment under the Charter.

Just remember that getting an interest-only mortgage through the government’s Mortgage Charter only lasts six months. Once the six months is up, you’ll go back to the standard repayment mortgage. Be prepared for it to revert!

Can I get interest-only mortgages if I’m behind on payments?

This depends on your lender. You might be able to work out a deal where you switch to an interest-only mortgage and use that period to catch up on missed payments, for example.

Your exact financial situation, debts, and credit score will impact your options, so speak to a financial advisor to learn more about how you can get back on top of your mortgage repayments.

Can I change to an interest-only mortgage to help me through a job loss?

Yes, if you have lost your job, you should be able to switch to an interest-only mortgage. The six-month relief period can help you keep costs low while you job hunt.

Can I get an interest-only mortgage for longer than six months?

You will need to remortgage with an interest-only lender. This will extend your interest-only mortgage period from six months to a longer period. This option is often used by house flippers, who intend to fix up the property and then sell it within a few years (sometimes even less than one).