With Interest Only, your monthly repayments don’t include any of the capital you owe. However you are still contractually obliged to repay the full amount you borrowed at the end of your agreed term.
Your home may be repossessed if you don’t pay the full amount on the date we agreed. You can also be taken to court to recover any additional shortfall if the sale price of your property does not cover the loan.
If you don’t want to sell your home, you should have a separate investment vehicle to generate sufficient funds to pay back your loan. Investment returns are rarely guaranteed, so you should check the performance of your investment regularly and if you are worried seek independent financial advice.
If you are happy to sell your property at the end of your mortgage term, you should consider that with the recent downturn in house prices, your property could be worth less than you expect. You might also find you have to sell at a low point in the market. If you’re confident you will be able to cover your mortgage with the sale, don’t forget you’ll still need somewhere to live and the amount you are left with might not meet your needs.
Alternatively, you could switch to a Repayment mortgage now, so you can pay back the loan in smaller amounts over the remainder of your mortgage. The extra amount you pay each month might be a small price to pay for peace of mind when your mortgage comes to the end of its term.