Are Part and Part Mortgages Worth It?

Specialist mortgage products exist for many reasons, providing customers with tailored solutions that fit a niche need. One of these is the part and part mortgage, a combination of repayment and interest-only mortgage structures that can provide lower monthly payments while still ensuring the property is yours at the end of the term.

How do part and part mortgages work, and when do they make sense to use? Let Clifton Private Finance explain.

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What Exactly is a Part and Part Mortgage?

The two traditional payment structures for a mortgage are repayment mortgages and interest-only mortgages. These work as follows:

Repayment mortgage - Each monthly repayment covers the interest generated that month (the interest portion) and an amount that pays off the balance of the mortgage total (the repayment portion). As the balance drops, the interest accrued lowers and the amount of repayment increases, keeping the monthly repayments level but paying off the mortgage at an improved rate.

Interest-only mortgage - Only the interest portion of the mortgage is paid, making the monthly payments smaller than with a repayment mortgage. However, at the end of the term, the full principal of the mortgage is due (the amount originally borrowed). This is typically repaid by selling the property or refinancing with a repayment mortgage. Because the value of the property usually increases over the years, a return on investment is expected.

Crunching the Numbers - When is a Part and Part Mortgage Financially Suitable?

Part and part mortgages are greatly affected by interest rates. As a general rule, when interest rates are low, part and part mortgages are more advantageous, while they do not perform as well during periods of high interest.

The benefits and disadvantages of a part and part mortgage are best seen through example. We’ve compiled the figures to show the difference between the three mortgage types at three different interest levels. These examples compare the results on a £300,000 mortgage over 25 years, with interest rates of 2%, 5% and 8%, with calculations for a full repayment mortgage, interest-only mortgage, and part and part mortgage with a 50/50 split (half repayment, half interest-only).

5% Interest Example

2% Interest Example

8% Interest Example

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Case Study: Part & Part for Expat Affordability

Part and part mortgages can be particularly useful for managing affordability, especially with complex circumstances like expat status and foreign income. We assisted a client returning from the Cayman Islands who struggled to secure the required loan size due to existing debts. By structuring the £470k mortgage as part-repayment, part-interest-only, and leveraging prospective rental income (even in foreign currency), we met their borrowing needs while keeping monthly payments lower to ease cash flow during their relocation.

[Read the full Expat Part-in-Part Mortgage case study here.]

Why Choose a Part and Part Mortgage?

It’s reasonable to suggest that on paper, there’s little to recommend a part and part mortgage - unless the interest rate is extremely low, the savings don’t really justify the end repayment. However, when considering the other factors that go into choosing a mortgage, part and part mortgages start to show their worth:

You want to make some sort of repayment - When the options are a repayment mortgage you cannot manage or an interest-only mortgage that feels more like renting than buying a house, a part and part mortgage can make all the difference. Now, you’re chipping away at the mortgage and can put a plan in place to remortgage to a full repayment mortgage later on (either at the end of term or earlier if your finances improve) and clear the balance fully.

Your affordability is tight - That relatively small saving of a couple of hundred pounds per month could make all the difference. When your budget is squeezed and you’d fail an affordability test for a full repayment mortgage, a part and part mortgage can offer an answer that is far lower risk than an interest-only option.

You’re expecting a windfall - If you know there’s some money coming your way in the future that will cover the final balance, it can make sense to keep the payments lower in the short- to medium-term and clear the deficit when the windfall comes in. This may be from an expected inheritance in years to come, a bonus that will come at the completion of a long project, or because you have another property that is going to eventually sell but is in a slow market.

Just Don’t Forget Interest Rates

It is vital to keep interest rates in focus when thinking about a part and part mortgage (or an interest-only one) as they are affected by this somewhat more than a repayment mortgage. When interest rates are high, the financial benefits of a part and part mortgage diminish significantly, making a repayment mortgage the better choice during those times.

A Part and Part Mortgage as Part of Long-Term Strategy

While mortgages are thought of as long-term set financing, regular remortgaging is possible and should form part of your long-term financial planning.

By keeping an awareness of interest rates and working with a trusted mortgage broker like Clifton Private Finance, you can re-evaluate your mortgage often and use part and part mortgages as part of a comprehensive strategy for making the most out of your mortgage.

Apply for a Part and Part Mortgage with Us

Strategic long-term mortgage planning is one of our strengths at Clifton Private Finance. Our mortgage team have all the expertise you need to save money over the lifetime of your mortgage, keeping your monthly payments low and in-budget, and ensuring you have the buying power needed to obtain the home of your dreams.

Contact us to discuss the benefits of a part and part mortgage and to see how it might suit your personal requirements. Our team have established relationships with the wide range of UK specialist lenders and can give you the advice you need to make a strong informed decision regarding your mortgage choices. Give Clifton Private Finance a call today.

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