Frequently Asked Questions

Use our frequently asked questions to find out what you need to know about Interest-only mortgages with Bank of Scotland.

  • 1.

    How does an interest-only mortgage work?

    When you have an interest-only mortgage, your monthly payments only pay the interest charged on the amount you borrowed. This means the interest-only balance doesn’t reduce and you’ll need to have separate plans to pay this amount by the time your mortgage ends.

    For example, if you borrowed £125,000 with an interest rate of 3% over 25 years, we’ll set your monthly mortgage payments at £313. By the end of your mortgage, you’ll still need to repay the £125,000 you originally borrowed.

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  • 2.

    What’s the difference between an interest-only and a repayment mortgage?

    Interest-Only Mortgage Repayment Mortgage
    Your monthly payments will only repay the interest charged on the amount you borrowed. This means that you won't be paying off the amount originally borrowed. Your monthly payments will go towards reducing the amount you borrowed and the interest charged on this amount. This means that each month you are paying off a small part of what you borrowed.
    You'll need a separate plan in place to repay your interest-only balance by the end of your mortgage. Your monthly payments are set to repay everything you owe by the end of your mortgage.

     

    Your mortgage can also be a combination of repayment and interest-only. This way, some of your monthly payments will also go towards reducing the balance.

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  • 3.

    What is a mortgage repayment plan?

    By the end of the mortgage, you'll need to repay the full interest-only balance. There are many different plans you can put in place to repay the balance and we’ve listed some of these below. When considering your options, you should make sure that your plan will provide enough to repay the balance and importantly, be available when you need to make the final payment.

    Repayment plans Things to consider
    Switch to a repayment mortgage

    Switching all, or some of your mortgage to a repayment mortgage means you’ll start paying off the amount you borrowed, as well as the interest. If you switch your whole mortgage to repayment, we’ll set your monthly payment to repay everything you owe by the end of your mortgage term. If you switch part of your mortgage, you’ll reduce the amount you’ll need to repay by the end.

    Use our change to a repayment mortgage calculator to work out how changing to a repayment mortgage could benefit you.

    To switch to repayment, please call us. We’ll look at your income and how much you spend each month to understand if this is an affordable option for you.
    Overpayments

    When you make overpayments to your mortgage, you’ll reduce the amount you owe and pay less interest. The sooner you start making overpayments, the sooner you’ll start reducing the interest only balance. Use our overpayment calculator to work out how overpaying on your interest only mortgage could benefit you.

    If you have a current account with us, you can make overpayments using internet banking. Or you can call us. If you bank elsewhere, please ask your bank to set up your payments using the following information:

    Sort code: 30 00 00
    Account number: 00332275
    Reference number: Please use your mortgage account number and add 00 at the end. If you want the payment to go to a specific sub-account replace the final 00 with the 2 digit sub-account number.

    Early repayment charges may apply to your mortgage. Please check if you’re unsure if these apply.
    Sale of your main or second property House prices change regularly and may fall as well as rise. It’s important to be realistic about the value of your property and to allow enough time to complete the sale before your mortgage ends.
    Savings You should check your statements when you receive them to make sure you'll have enough and can get access to the money when you need it.
    Premium Bonds It’s important to understand that prize money isn’t guaranteed.
    Endowment Policies You should check your statements when you receive them to make sure you'll have enough and can get access to the money when you need it.
    Investments The value of any investment can change over time, falling as well as rising. You should check your statements when you receive them to make sure you'll have enough and can get access to the money when you need it.
    Pension

    Using the lump-sum from your pension policy to repay some, or all, of your mortgage at the end of the term will impact the income you'll have when you retire. If you're unsure how this will affect your retirement income, you should speak to an independent financial advisor.

    Independent financial advisors
    Sale of a business or other assets The value of any business or assets you plan to sell can go down as well as up. If you don't get the amount you expect when you sell, it may affect your ability to repay. It may take a while to sell your assets so you’ll need to plan for this in good time before your mortgage term ends.
    Bonus Changes in any bonus you expect to receive may affect your ability to repay your mortgage.
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  • 4.

    What do I need to do before my mortgage term ends?

    We’ll write to you during the last year of your mortgage, with details of how much your interest-only balance is and when it’s due to be repaid.

    You should check your repayment plan is on track to repay everything you owe and also that you can get access to the money when you need it. If you’re planning to sell a property, business or other assets, you should allow enough time for the sale to complete and the money to become available.

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  • 5.

    I can repay the interest-only balance, do I need to do anything?

    If you’re confident your plans are on track to repay everything you owe, let us know. It only takes a couple of minutes to tell us your plans or if you’d like to discuss your plans you can call us.

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  • 6.

    My plans have changed, what do I need to do?

    If your plans change, but you’re still happy you can repay everything you owe that’s great. Please let us now and keep us updated if your plans change again. It only takes a couple of minutes to tell us your plans or if you’d like to discuss your plans you can call us.

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  • 7.

    What if my savings, endowment policy or investments won’t repay all my mortgage?

    It’s important to be realistic about the value of your savings, endowments or investments. You can check your savings, endowments and investments statements to make sure you have enough to repay your balance when your mortgage term ends. It’s best to talk to us as soon as you can if you are worried your plans might not be enough to repay your mortgage.

    You can call us.

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  • 8.

    What if I don’t know how I’ll repay my interest only balance?

    If you think you may struggle to repay your full interest only balance, let us know as soon as possible. You could be a few years from the end of your mortgage term , maybe just a few months, or even already past the end of your term. However long you have left, the sooner you get in touch, the more solutions you may have.

    Every day we help customers make plans. We can help you decide what works best for you. Check what information is available to you online or you can call us.

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  • 9.

    My property sale will repay my outstanding balance. When should I plan to sell?

    If you are using the sale of a property to repay your mortgage, you should give yourself enough time to market and sell the property before the term ends. You may need at least 12 months to market your property to allow time for the sale to go through.

    House prices change regularly and may fall as well as rise. It’s important to be realistic about the value of your property, make sure you are prepared and understand what your next steps will be after you have sold your property.

    Please call us if you would like to speak to an adviser.

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  • 10.

    Where can I find independent help and advice about my mortgage?

    We’re always here to talk to you about your finances, but there are other people you can talk to for independent help and advice. Here are some services that offer free, impartial support:

    You can find a list of independent financial advisors at unbiased.co.uk.

    If you have any questions about your mortgage which aren’t covered above, please call us.

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