Interest Only Mortgages

With an interest only mortgage, you only pay the interest on your loan to your lender each month; you don’t actually pay off any of the capital that you’ve borrowed until the end of the mortgage term. Whilst this offers borrowers the opportunity to make lower repayments each month, you will still need to make other arrangements for paying back the capital at a later date.

To investigate your mortgage options call our team on 0117 959 5094 or fill in our call back form

Advantages of Interest Only Mortgages

There are potentially a number of benefits associated with interest only mortgages which have made them a popular choice amongst home buyers.

• Low monthly repayments – As you are only paying the interest accumulated on the loan, you are going to have less to pay back each month than if you were also paying a contribution towards the capital on the loan.
• Qualify for a larger loan – As you are repaying less each month it is likely that you will be able to afford a larger loan.
• During the interest only period, the whole amount of the monthly payment qualifies as tax deductible.

Whilst there are a number of benefits with taken out interest only mortgages, it should be taken into consideration that you must have some strategy on how you intend to repay the capital from the loan at the end of its term.

Part and Part Mortgages

As part of a repayment plan it is also possible to split a mortgage between two different repayment methods, interest only and repayment. This involves repaying part of the mortgage balance as repayment, and the remaining part as interest only. This will help you in reducing the amount of mortgage that you owe at the end of your term, although it is likely you will still have to repay some capital at the end.

Repayment Vehicles

Repayment vehicles are used in order to reassure lenders that you will be able to repay the remaining capital at the end of an interest only loan.

Examples of typical repayment vehicles include:

• Cash saved in a savings account or ISA (although not all lenders are accepting this as a repayment vehicle)
• Stocks and shares ISA
• Pensions
• Investment bonds
• Shares
• Unit trusts
• Regular savings plans (endowment policies)
• Other properties or assets

Your lender is likely to assess how likely it is that your repayment vehicle will be able to pay off the remaining capital at the end of your interest only mortgage.

Alternative methods of paying the remaining balance on your mortgage

If you do not own any repayment vehicles, and you are concerned as to how you intend on repaying the remaining capital on your mortgage, there are a number of alternative methods you can pursue.

• Conversion of the mortgage to a repayment method – this involves repaying an amount that covers both the interest accumulated on the loan and the capital on a monthly rate.
• Extension of the loan with either a repayment method or a part and part mortgage.
• Repayment of lump sums to reduce the remaining balance.
• Construct regular overpayments to reduce the remaining balance gradually.
• Switching to a new product with lower monthly repayments in conjunction with any of the above.

Some of these options may not necessarily be suitable for you depending on your personal situation. Our team of mortgage specialists can assist in giving you advice and guidance in creating a repayment strategy to ensure that you fully pay off your mortgage.

Suitable candidates for Interest Only Mortgages

Like most financial products, an interest only mortgage is not likely to be suitable for everyone.  The relevance of an interest only mortgage to you will depend on your personal circumstances, which is why you should contact a mortgage broker give you advice on whether you should apply for an interest only mortgage. Interest only mortgages tend to be favourable if:

• The borrower's income is certain to increase in the future.
• The equity in the home is sizeable and the borrower will use the money to go toward other investments or principal payments.
• Income is irregular and the borrower wants the flexibility of making interest only minimum payments during times in which income is low, and makes larger payments during periods in which income is higher.

Finding the best Interest Only Mortgages

A mortgage broker can analyse your personal situation and offer independent unbiased advice and guidance to find an interest only mortgage that you can afford, and that fulfils your mortgage goals.

We work with the majority of UK interest only mortgage lenders to bring you exclusive and leading rates tailored to your specific financial situation and needs. If you would like to compare interest only mortgages, or have any queries, why not call us today for a free initial consultation.

To investigate your mortgage options call our team on 0117 959 5094 or fill in our call back form