Considering switching to an Interest Only Mortgage – What you need to know

For many homeowners, the structure of their mortgage is one of the most significant financial commitments they’ll make, and it’s only natural to reflect on whether your current mortgage arrangement is still the right fit for your circumstances. 

If you’re currently on a repayment mortgage and have been exploring alternatives, you may have come across interest only mortgages as a possible option. This type of mortgage can offer certain benefits in specific situations, but it also carries some important risks and responsibilities which need to be fully understood before making the switch. 

At Thomas Oliver, we believe in providing balanced and transparent advice, so here’s a helpful overview of what you need to know if you’re considering moving from a repayment mortgage to an interest only arrangement.

Understanding the key difference: repayment vs interest only

To begin with, it’s important to understand the fundamental difference between a repayment mortgage and an interest only mortgage. With a repayment mortgage, your monthly payments cover both the interest charged on the loan and a portion of the original loan amount, also known as the capital. 

This means that by the end of your mortgage term, assuming all payments are made as agreed, the loan will be fully repaid and you will own your home outright.

An interest only mortgage, on the other hand, works quite differently. As the name suggests, your monthly payments only cover the interest due on the loan, you are not repaying any of the capital during the mortgage term. This typically results in lower monthly payments, which can be attractive, particularly for those experiencing temporary cash flow difficulties or needing flexibility in their budget. 

However, at the end of the mortgage term, the full loan amount remains outstanding and must be repaid in one lump sum. It’s therefore crucial that you have a clear and credible repayment strategy in place from the outset.

The potential benefits of switching to interest only

For some borrowers, switching to an interest only mortgage can offer useful short- or medium-term benefits. Lower monthly payments can ease financial pressure, particularly for those whose income fluctuates, or who are undergoing a temporary change in circumstances, such as self-employment, career breaks, or supporting dependants. 

In some cases, interest only can be a helpful part of a broader financial planning strategy, especially where the borrower has strong investments or a property portfolio and is comfortable managing the associated risks.

For those who are property rich but income poor, a situation that sometimes arises in later life, an interest only mortgage may provide a way to remain in the home they love without the pressure of high monthly repayments. However, this often requires the mortgage to be approved on the basis of age and affordability, which is something a mortgage adviser can guide you through carefully.

The risks and considerations that should not be overlooked

While the appeal of lower monthly repayments is clear, it’s essential not to overlook the risks and responsibilities involved with an interest only mortgage. The most significant concern is ensuring you have a reliable and sufficient repayment plan. If you fail to repay the outstanding loan at the end of the term, your home may need to be sold, or worse, you may face repossession.

Additionally, while you may be paying less month-to-month, you will usually pay more in interest over the life of the mortgage, as the capital remains unchanged throughout the term. 

The risks also increase if your chosen repayment vehicle underperforms, for example, if your investments don’t grow as expected or your property doesn’t appreciate in value as anticipated.

It’s also important to note that not all lenders are willing to offer interest only mortgages unless the borrower meets strict criteria, which may include higher income levels, a larger deposit or equity stake in the property, and a detailed repayment strategy. 

Regulatory requirements introduced by the Financial Conduct Authority (FCA) mean lenders are obliged to assess the affordability and sustainability of interest only borrowing very carefully.

Is switching the right choice for you?

There is no one-size-fits-all answer when it comes to mortgage decisions, and what works well for one person may not suit another. Interest only mortgages can offer flexibility and may align with your long-term financial strategy, but they are not suitable for everyone. Before considering a switch, it’s essential to speak with a qualified mortgage adviser who can help assess your individual circumstances, future plans, and appetite for risk.

At Thomas Oliver, our advisers take the time to understand your full financial picture and can help you evaluate whether switching to an interest only mortgage is in your best interests. We are regulated by the Financial Conduct Authority and committed to ensuring you receive advice that is clear, fair, and not misleading.

Katherine Mumford, Mortgage Broker & Protection Adviser in Tottenham, North London said:

“Making any changes to your mortgage should never be done lightly, particularly when the change involves a different repayment structure and associated risks. With something as significant as your home and your long-term financial wellbeing at stake, it pays to have an experienced adviser by your side. If you’re thinking about switching to an interest only mortgage, or if you’re unsure whether it’s right for your circumstances, please get in touch with the Thomas Oliver team. We’re here to help you navigate your options with confidence and clarity, and to make informed choices that support your goals both now, and in the future”.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

Sources: www.fca.org.uk, www.moneyhelper.org.uk, www.gov.uk/mortgages, www.ukfinance.org.uk, www.a-m-i.org.uk

Thomas Oliver UK LLP is an appointed representative of The Openwork Partnership, a trading style of Openwork Limited, which is authorised and regulated by the Financial Conduct Authority.

Approved by The Openwork Partnership on 03/09/2025.