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What is an interest-only mortgage?
With an interest-only mortgage, your monthly payments are only repaying the interest on what you’ve borrowed. That means the amount you’ve borrowed doesn’t go down.
Existing Halifax customers
If you’re an existing Halifax customer, get help with managing your interest-only mortgage
Options for repaying an interest-only mortgage balance
Your plan to repay the mortgage balance is often called a ‘repayment vehicle’. And can include:
Other assets and properties
If you own a property, you could use the money from selling it to pay off your mortgage.
Learn more about repaying an interest-only mortgage
Watch our video to find out the different ways you can repay your mortgage.
Pros and cons of interest-only mortgages
Pros
- Often offer smaller monthly payments as you’re only paying off the interest each month.
- Useful for Buy-to-let property owners as your monthly rental income tends to cover the interest repayments.
- It could give you an opportunity to save and reinvest this money into making improvements to your new property.
Cons
- You could end up paying more in interest overall as your capital will stay the same each month. So, you’ll be charged interest on the full amount of what you borrow.
- It might be more difficult to get accepted for an interest-only mortgage, as they’re often viewed as higher risk.
- If you get to the end of your term and your repayment vehicle hasn’t performed and doesn’t cover the lump sum, you’ll either need to sell your home or find another way to repay.
Let’s take a closer look
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It can vary from lender to lender. If you’re buying a buy to let property, you’ll need a deposit of at least 25% to get an interest-only mortgage with us. You might need more depending on the deals available.
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Yes, you can pay off the lump sum of your interest-only mortgage at the end of your term by selling your house to offset the loan amount borrowed. If you’re looking to sell your home before the mortgage term ends, you might have to pay an early repayment charge to do so.​
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Yes, you can pay a lump sum off your interest-only mortgage early. Some lenders might charge you an early repayment fee though. Check the terms and conditions of your interest-only mortgage for more details about this.
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We'll write to you during the last year of your mortgage, with details of how much your interest-only balance is and when it’s due to be repaid.
You should regularly check that your repayment plan is on track to repay everything you owe and that you can get access to the money when you need it. If you're planning to sell a property, business or other assets, you should allow enough time for the sale to complete and the money to become available.
The content on this page is for reference and does not constitute financial advice. For unbiased financial advice, we recommend government bodies like MoneyHelper.
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