Important Information for customers with Interest Only Mortgages
With an Interest Only Mortgage, repayments cover the interest element of your loan and not any of the outstanding loan (capital). The actual amount of capital borrowed must be repaid in full at the end of the agreed term of the mortgage.
It is therefore vital that there is a realistic repayment plan in place. The closer a mortgage is due to end the more important it is that you review your plan of repayment and take whatever action is necessary to address any potential shortfall. It is also recommended that you continue to review your repayment plan on a regular basis.
This review may include obtaining up to date values of any investments and savings plans you may have in connection with your mortgage and obtaining a current value of the property if a sale of the same is your proposed route to repayment.
We have taken some of your frequently asked questions and answered them below.
What is an Interest Only Mortgage?
This is a mortgage where your monthly repayments only cover the interest on the loan and you are not paying back any of the capital borrowed unless you have elected to make overpayments.
It is therefore very important that you have a repayment plan in place to repay the capital at the maturity of the loan. This could be an investments and savings plan, overpayments, personal savings or other liquid assets.
If at maturity, there is a shortfall in your investments and savings plan, you will still be liable to repay any amount of capital outstanding.
I already have a repayment plan in place for my Interest Only Mortgage. Why do I need to review this?
It is important to review your Interest Only Mortgage repayment plan at least annually to ensure that it is on track to repay your loan on or before its maturity date.
In the case of investments and savings plans, you should regularly review the payment projections for the policy which are generally posted out to you annually by your policy provider. You can however contact them at any time to obtain up to date figures.
What do I need to do if I do not have a repayment plan in place?
If you do not have a repayment plan in place you should act now, even if the maturity date of your mortgage is still many years away.
The longer you delay addressing the matter, the fewer options you may have to put a suitable plan in place.
What do I need to do if my repayment plan is insufficient to repay my mortgage by its expiry date?
Your options will depend on your personal circumstances and these may include:
- Transferring some or all of your mortgage on to a Capital & Interest Mortgage (this would be subject to our usual credit assessment and current Terms & Conditions).
- Introducing lump sums such as personal savings to reduce the balance of your mortgage, for example to bring the balance into line with any investments and savings plan projections.
- Making regular monthly overpayments. Any amount paid in addition to that required to cover the interest, will go towards reducing the capital amount outstanding.
- Considering a sale of your property or downsizing to a property of a lesser value.
If my repayment plan does not fully repay my Interest Only Mortgage at maturity, will I be able to extend the term of the existing loan?
Upon maturity of your existing Interest Only Mortgage, you will not be able to extend the term however you may wish to apply for a new replacement loan with a repayment structure designed to meet your individual circumstances.
If I decide to switch some or all of my loan on to Capital & Interest Repayment, who should I speak to?
If you decide to switch some or all of your Interest Only Mortgage on to a Capital & Interest Repayment Mortgage, you should contact us on 028 9004 9221.
If I have concerns about my ability to cover my mortgage repayments, who should I speak to?
If you have concerns about your ability to cover your mortgage repayments or any other Danske Bank debt, please refer to our page on Customers in financial difficulty.
Alternatively you may contact us on 028 9004 9221.