How to change from an interest-only to a repayment mortgage

With an Interest-only mortgages your monthly repayments cover only the interest charged on the money youve borrowed.

This means your monthly costs are far lower than with a repayment mortgage, where the repayments include a proportion of the sum borrowed known as the capital as well as the interest.

This option is also called a capital and interest mortgage.

The problem with an interest-only loan is that at the end of the agreed mortgage term, you still owe the original amount borrowed

And, if you can't repay it, you will have to sell your home or have it repossessed by the lender.

So, if you don't have some other way of clearing the debt, consider switching to a repayment mortgage as soon as you can afford it.

How to make the change

• If you can cope with the payments, switch the whole debt to a repayment basis, or

• A cheaper option (in the short-term at least) is to switch part of the debt to repayment, leaving the rest as interest-only.

• You can always change the rest later, when your financial situation improves.

The first step

Begin by speaking to your existing mortgage lender.

• It may agree to let you make the change and stay on your existing mortgage deal, or

• If may offer you a new deal on different terms, but be sure to find out what fees are involved.

The second step

In either case, don't accept without shopping around to see if you can get a better deal from another lender but remember to include any fees in your comparisons.

If you take a new deal at a lower interest rate, your monthly payments may not rise as much as you expect.

To find out more about comparing loans, read How to spot a good deal.

For an idea of the deals and interest rates currently on offer, see our Best buy tables.

To read more on this subject please see the list below or your mortgage guide or your home buying guide

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