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Repaying your mortgage

Like any loan, with a mortgage you have to repay the capital (the amount you borrow) and, until it's repaid, pay interest on the capital, outstanding.

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Interest-only
Repayment
Part interest-only

Interest-only

If you choose to conduct your mortgage on an interest-only basis, the monthly payments you make only cover the interest on the loan. It is now a requirement that you have a repayment plan in place when you apply for any interest-only lending. This type of mortgage does not pay back any of the money you have borrowed, called 'capital' during the mortgage term.

To repay the capital you need a lump sum at the end of this term. It is your responsibility to make sure you have a plan in place that helps you repay this amount, plus any other costs and charges.

An interest-only mortgage is a higher risk than a repayment mortgage. In most cases, there is no guarantee that you will be in a position to fully repay the capital amount you owe at the end of the term.

Important

We do not provide advice on repayment plan(s) or make any guarantees that your plan(s) will be sufficient to repay everything you owe at the end of the mortgage term. You must review your plan(s) regularly during the term of your mortgage to make sure it is on track to repay the outstanding balance.

Periodically we may ask you to provide evidence of your repayment plan(s) and this includes when you request additional services.

If you are unable to demonstrate that your repayment plan(s) remain(s) on track to repay the outstanding balance on your mortgage, we will not be able to proceed until you have provided evidence to us that you have a suitable repayment method in place for any new and existing interest-only borrowing.

Please remember it is your responsibility to ensure you have sufficient funds to repay your outstanding balance at the end of the mortgage term. If you are unable to do so, your property may need to be sold to repay the mortgage.

Our Requirements:

We will only be able to complete any of the below transactions when our requirements have been met:

When you request any borrowing on an interest-only basis, you will need to provide us with evidence of your repayment plan(s) from the table below. We will make an assessment of whether the repayment plan(s) meets our requirements. This includes checking to see whether it has a reasonable prospect of repaying the amount borrowed on an interest-only basis.

If any of your existing borrowing is on an interest-only basis and you would like additional borrowing, you will need to provide us with evidence of your repayment plan(s) from the table below. We will make an assessment of whether the repayment plan(s) meets our requirements. This includes checking to see whether it is likely to repay the total amount borrowed on an interest-only basis. This is necessary where some or all of your existing debt is conducted on an interest-only basis, even if your additional borrowing is to be managed on a repayment basis.

Where any part of the mortgage is currently on an interest-only basis, you will be required to provide evidence of the repayment plan(s) intended to repay this part of the debt, before any further part of your mortgage debt is put into an interest only basis.

The repayment plan(s) you intend to use to support your interest-only lending must be on our acceptable list.

The table below details the plans we accept for new interest-only lending and the method we use to help us make this assessment.

Repayment plan Information required Assessment method
Endowment policies (UK) Copy of latest projection statement dated within last 12 months Endowment companies will present three growth rates with the middle ones being the most likely maturity value. We will allow up to 100% of the projected amount using the middle figure
Investment backed (UK)
Stock & Shares ISA (UK)
Unit Trusts/Open Ended
Investment Companies (UK)
Investment Bonds (UK)
Copy of latest statement dated within last 12 months We will accept up to 80% of the latest valuation of the Stocks & Shares/ISA/OEIC/Investment Bond providing the latest value is greater than £50,000*
Pension (UK) Copy of latest projection statement dated within last 12 months For the purposes of backing an interest-only mortgage, a maximum of 25% of the current fund value can be used, providing the latest value is greater than £1m*
Stocks & Shares (UK) Copy of share certificates, nominee account statement or confirmation from a recognised stock broker containing evidence of share holdings together with their valuation See Investment Backed – Stocks & Shares ISA (UK)
Sale of Second Home (UK) Property details, confirmation of ownership, evidence of amount of any mortgage debt We will check the ownership of the Second property and assess its value. We will deduct any amount you owe which is secured on the property (for example by a mortgage) and allow you to use up to 80% of the amount left over (providing this is over £50,000*)

* Minimum value does not apply for additional borrowing applications.

Note: Repayment plans cannot be accepted if they include the name of anyone not named on the mortgage.

As with any investment there is a risk that your investment will be insufficient to repay your outstanding mortgage at the end of the term and could mean that your property needs to be sold to repay the mortgage. We will not provide advice on your investment plan and strongly recommend that you take independent advice.

Repayment

When you have a repayment mortgage, the monthly payment you make gradually pays off both the amount you borrowed (the capital) as well as the interest on the loan. As long as you make all your monthly payments when they're due, the loan amount is guaranteed to be fully repaid at the end of the term.

Part interest-only

You might have split your mortgage between repayment and interest-only (this will be shown on your annual mortgage statement). This means that at the end of the term, the amount of the mortgage being paid on an interest-only basis will need to be repaid by a lump sum - so you need to make sure that you have an acceptable plan in place to repay this amount.

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