Branches & agencies
Switching to interest-only for six months
If your payments are up to date and not in arrears, the Charter allows you to switch your mortgage to interest-only for six months. There won’t be a new affordability check (to examine your income and outgoings), and your credit score won’t be affected.
This means that for six months you will pay the interest each month, but none of the capital.
Remember, this is a temporary arrangement – after six months your account will change back to a repayment mortgage. Then, your monthly payments will increase again, and they will be higher than before. This is because the new payments will include the capital that hasn’t been paid for six months – spread over the remaining term of the mortgage.
The total amount of interest that you pay over the life of the mortgage will also be higher.
Switching to interest-only for six months can help you in the short-term by reducing your monthly payments. However, if you can afford to pay your mortgage payments now, you should keep them as they are.
Who can change to interest-only?
You can change to interest-only for six months if all of the following apply to you:
- You are up to date with your mortgage payments, and do not have any arrears.
- You have a residential mortgage (it is not available for a buy-to-let mortgage).
- You don’t already have an interest-only mortgage.
- Your new mortgage term will still finish before your expected retirement age.
- Your existing mortgage deal will not end during the six-month interest-only period (you will need to wait until after you have a new product in place).
How would this affect my payments?
Interest-only payments don’t pay off any of the capital towards your outstanding mortgage balance, so after six months you’ll have to make up any capital balance repayments that were not made during the interest-only period. We will increase your monthly mortgage repayments, which means you’ll end up paying more interest by the end of your full term than you would have under your original plan.
Before you decide to switch your mortgage to interest-only for six months, we will let you know how much your new payments will be and how much extra interest you will pay over the term of the mortgage. The following example shows how the payments would change for a current balance of £100,000.
– The example assumes an interest rate of 6%, and that it remains the same.
– It assumes that the remaining mortgage term is 10 years.
In this example, this is how the payments would change:
– The original monthly repayment is £1,100.
– During the six-month interest-only period, the monthly repayment would be £500.
When the mortgage changes back after six months, the new monthly repayment would be £1,153. The monthly repayments increase after the six-month period because each new payment includes part of the capital (approximately £3,720 in total) that wasn’t paid during those six months.
Interest rates change from time to time. However, only for the purpose of this example, if the interest rate were to remain at 6% you would pay about £1,200 more interest over the whole term of the mortgage.
Repayment calculator
You can use our repayment calculator to compare the cost of your mortgage on repayment or interest only. You’ll need to know:
- The current interest rate of your mortgage.
- Your remaining mortgage balance – you can find this by logging onto H&R Online (if you are registered) or from your last annual mortgage statement.
- The remaining term of your mortgage.
You can input this into the calculator and see how your payments would change if you move to interest only.
What happens after six months?
If you decide to go ahead with temporarily switching to interest only for six months, we’ll convert your mortgage back to its original payment method and recalculate your monthly payment based on the outstanding balance and remaining term at the time. Your monthly payment will be higher than it was before the arrangement. This ensures that the mortgage balance is paid off by the end of the original term and we’ll advise you of this at the time.
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