Interest-only mortgages have become increasingly popular among borrowers looking for lower monthly payments and greater financial flexibility. But with those lower payments comes a major responsibility. You must have a reliable plan for repaying the capital at the end of the term.
Nationwide Building Society recently introduced significant updates to their interest-only mortgage eligibility criteria, opening up a wider range of acceptable repayment vehicles. In this blog we will go through the different ways that you could pay back an interest-only mortgage loan, and what the benefits of doing so are.
What Is an Interest-Only Mortgage?
With an interest-only mortgage, your monthly payments cover interest only, not the loan balance. At the end of the term, the full original amount must be repaid in a lump sum. So for example, you could take an interest only mortgage of £300,000 for 25 years and pay the monthly interest on the loan. At the end of the 25 years, the £300,000 will still remain and will need to be paid back to the lender. Because that lump sum must come from somewhere, lenders require a credible repayment vehicle, a clear, evidenced plan showing how you’ll pay back the capital.
Paying Off an Interest-Only Mortgage With a Remortgage
A remortgage allows you to switch your existing interest-only mortgage to a new deal, either with your current lender or a different one. Many homeowners use remortgaging as a way to:
- Move from interest-only to capital & interest (repayment)
- Partially switch to repayment (known as “part and part”)
- Access better rates to make repayment more affordable
- Release equity (if suitable) to help reduce other debts or restructure finances
- Extend the term (if accepted) to make repayment manageable
Switch to a Capital & Interest Mortgage
The most straightforward way to ensure your interest-only balance is repaid is by switching the entire loan onto a repayment basis at remortgage. This spreads the repayment of the capital across the remaining term.
Switch to Part & Part
If full repayment is too expensive, many lenders, including Nationwide, allow borrowers to move to a part interest-only, part repayment structure, reducing the eventual lump sum owed, subject to a full affordability and eligibility check.
Remortgage to Raise Capital
Some borrowers remortgage to another lender and raise additional capital (subject to affordability and criteria) to clear the interest-only portion entirely.
Remortgage to Extend the Term
If your repayment window is short, remortgaging may allow you to extend your mortgage term, though this depends on the lender’s maximum age limits and criteria.
Is Remortgaging Right for You?
Remortgaging is often an effective solution if you want certainty about repaying the balance, you’re worried your repayment plan won’t be sufficient, you want to avoid selling your home, you now meet affordability for repayment borrowing, or you have enough equity to secure favourable rates.
However, if your income has reduced, your credit score has changed, or affordability is tight, alternative repayment vehicles may be more suitable, which is where Nationwide’s new criteria come in.
Nationwide’s New Interest-Only Repayment Rules
Nationwide has expanded the range of acceptable repayment options for interest-only mortgages. Previously, the only allowed method was the sale of your main residence, but the latest update now accepts several UK-based savings, investment and pension vehicles, as well as the sale of other UK residential property.
Newly Accepted Repayment Plans
Nationwide now accepts the following, alongside sale of your main residence:
- UK savings (including Cash ISAs and Premium Bonds)
- UK investments (e.g., stocks & shares ISAs, unit trusts, OEICs)
- UK pension schemes (defined benefit & defined contribution)
- Sale of other UK residential property
Importantly, there is no minimum equity requirement for these newly added repayment options. You can use any one of these individually or combine them, except when using the sale of your main residence, which must stand alone.
Sale of Your Main Residence
This remains a valid repayment vehicle, but with specific rules. You CANNOT combine this option with any other repayment method.
Minimum Equity Requirements
Nationwide requires a minimum level of equity at application, which varies by region:
- Region Minimum Equity Required
- Greater London / Outer Metropolitan £300,000
- Outer South East £250,000
- All other UK regions £200,000
Equity is based on your property value minus all mortgage borrowing (including any repayment borrowing).
Example Calculation
Property value: £1,000,000
Interest-only loan: £750,000
Capital & interest loan: £100,000
Equity = £1,000,000 − (£750,000 + £100,000) = £150,000
For criteria purposes: £250,000 equity is used
If your equity drops after valuation, your application may no longer meet Nationwide’s rules.
Sale of Other UK Residential Property
If you own another residential property (not commercial or held via a Limited Company), you can use its equity.
How the calculation works:
Nationwide uses 75% of the net equity in that property after subtracting any outstanding mortgage.
You’ll need to provide:
- The estimated property value
- Details of any mortgages secured against it
- UK Savings
This includes savings such as cash ISAs, premium bonds, and easy-access or fixed-rate savings accounts.
Eligibility calculation:
Nationwide uses 85% of the savings balance toward your repayment plan.
Proof required:
- Last three months of bank or investment statements
UK Investments
You can use regulated UK-based investments such as stocks & shares ISAs, non-ISA share accounts, unit trusts, OEICs, and Investment bonds.
Eligibility calculation:
- Nationwide accepts 75% of the total investment value.
Requirements:
- Investments must be FCA-regulated and UK-based
- Latest investment statements showing value and provider
- Funds must have been held for at least three months
- UK Defined Benefit Pension Scheme
This includes traditional final salary or career-average pension schemes.
You’ll key the current value and, if available, the projected Pension Commencement Lump Sum (PCLS).
Eligibility calculation:
Nationwide accepts 60% of the higher value between:
- current PCLS value
- projected PCLS value
Proof required:
- Latest pension statement
- Projected value confirmation (if used)
- UK Defined Contribution Pension Scheme
These include workplace and private pensions such as:
- Personal pensions
- SIPP funds
- Group workplace pensions
You’ll enter the current fund value and any projected fund value.
Eligibility calculation:
Nationwide uses 15% of the higher value (current or projected).
Proof required:
- Latest pension statement
- Projection confirmation (if used)
How to Choose the Best Repayment Strategy
When deciding how to pay off an interest-only mortgage, consider:
- Risk level: Investments carry risk; pensions fluctuate; property values can change.
- Time remaining on your mortgage: Shorter terms favour more secure options (e.g., savings).
- Tax implications: Some withdrawals, especially from pensions, may be taxable.
- Flexibility: Using a combination of plans (where allowed) can spread risk.
- Long-term lifestyle goals: Selling your main home may not suit you later in life.
Practical Tips to Stay on Track
- Review your repayment plan annually
- Keep documentation up to date, savings, investments, pensions
- Pay extra into investments or pensions when possible
- Consider switching part of the loan to capital repayment
- Speak to a mortgage broker to stress-test your plan
Speak to an Expert About Paying Off an Interest Only Loan
Nationwide’s expanded interest-only criteria provide far greater flexibility for borrowers. With more repayment vehicles now accepted, including savings, pensions, investments, and the sale of other UK property, you have more choice when planning how to repay your mortgage balance at the end of the term. However, interest-only borrowing still requires disciplined planning, regular reviews, and reliable documentation. Whether you’re taking out a new mortgage or reviewing an existing one, make sure your repayment strategy is realistic, affordable, and fully meets lender criteria. Speak to our team today to see how we can help.
Frequently Asked Questions: Paying Off an Interest-Only Mortgage
- What is the best way to pay off an interest-only mortgage?
There is no single “best” method, it depends on your finances, risk appetite, and long-term plans. Popular options include remortgaging to a repayment mortgage, using savings or investments, selling property, or using pension funds. Nationwide now accepts a broader range of repayment vehicles, giving borrowers more flexibility than before.
- Can I remortgage to pay off my interest-only mortgage?
Yes. Remortgaging is one of the most common methods of repaying an interest-only loan. You can switch to a full repayment mortgage, move to part-and-part, or even raise additional funds, subject to affordability and lender criteria.
- What new repayment options does Nationwide now accept?
Nationwide now accepts:
- UK savings
- UK investments
- UK pension schemes (defined benefit or defined contribution)
Sale of other UK residential property
These can be used individually or combined, except for sale of the main residence, which must be used on its own.
- Can I still use the sale of my home to repay an interest-only mortgage?
Yes, but this option cannot be combined with any other repayment method. Additionally, Nationwide requires a minimum amount of equity, which varies by region.
- How much equity do I need if I plan to sell my main residence?
Nationwide’s minimum equity rules are:
£300,000 in Greater London/Outer Metropolitan
£250,000 in Outer South East
£200,000 in all other UK regions
If your equity falls below this after valuation, your application may not be eligible.
- Can I use more than one repayment method?
Yes, Nationwide now allows combinations of savings, pensions, investments, or the sale of other property. The only exception is using the sale of your main residence, which must be used alone.
- Can I use savings or investments held outside the UK?
No. Nationwide only accepts UK-based and FCA-regulated savings and investment accounts as repayment vehicles.
- How much of my savings or investments will Nationwide count?
Nationwide uses:
85% of UK savings
75% of UK investments
60% of a defined benefit pension lump sum estimate
15% of defined contribution pension funds
These values help ensure that fluctuations or access limitations are accounted for.
- Can I use my pension to repay my interest-only mortgage?
Yes. Nationwide accepts both defined benefit and defined contribution pension schemes. You will need to provide the latest pension statement and, if used, projection details.
- What happens if my repayment plan isn’t enough at the end of the mortgage term?
If your repayment vehicle falls short, you will still owe the full outstanding balance. This may mean:
Extending the term (if allowed)
Switching to repayment
Using savings or investments
Selling property
Considering a later life mortgage or equity release (for eligible borrowers)
It’s important to review your plan regularly to avoid shortfalls.
- Can I switch part of my mortgage to repayment?
Yes. Many borrowers adopt a part-and-part approach, reducing the eventual lump sum while keeping monthly payments manageable.
- How often should I review my repayment plan?
Most advisers recommend checking your repayment vehicle at least once per year, and more frequently if it’s based on investments or pensions that can fluctuate.
- Does Nationwide require proof of savings, investments, or pensions?
Yes. You must provide recent statements, usually covering at least the last three months, to evidence funds, values, and provider details.
- Can I use a buy-to-let or commercial property as a repayment vehicle?
No. Nationwide only accepts the value of other UK residential property that is not owned in a Limited Company structure.
- Is an interest-only mortgage still a good option?
It can be, especially for those with strong assets, high disposable income, or clear retirement plans. The key is having a credible, well-evidenced repayment strategy that meets both lender criteria and your personal goals.
