About Interest Only Mortgages

An interest only mortgage will allow you to make monthly payments just to cover the interest on the money you have borrowed. Unlike a traditional repayment mortgage where payments consist of both capital and interest, with an interest-only mortgage, you will only pay the interest and the balance of the loan will therefore not decrease.

There are various reasons why an interest only mortgage may be appealing:

  1. Lower monthly payments: this means the loan would be more affordable on a monthly basis
  2. Short-term purchase: the borrower may be planning to sell the property in the short term and downsize to a cheaper property

  3. Investment purposes: the borrower could be planning to invest the money that would be used to pay the capital payments elsewhere

Risks and considerations

  1. Balance of mortgage will remain outstanding at the end of the term: as you are only paying the interest on the mortgage, the mortgage balance will remain the same and will be repayable at the end of the term
  2. Equity Building: as no capital is being paid during the term of the mortgage, the equity for the borrower will not increase unless the property value increases. This means they may have less equity available for the future, which could be problematic if the value of the property decreases

  3. Interest Rate Adjustments: if the interest rate loan is variable, borrowers may find their monthly payments increase if mortgage rates rise
  4. You will not fully own your own home at the end of the term: A lender will require you to pay the mortgage balance at the end of the term.  This may mean you need to sell your property to repay the loan
  5. Investment Returns: if you choose to invest your capital repayments in an investment policy, the growth may not be enough to repay your mortgage at the end of the term

  6. Part interest only and part repayment: Many lenders will offer a two-part loan which means you can have part of the mortgage on interest only and part on repayment. This allows you to build up some equity in your property whilst keeping your monthly payment low

Interest-only mortgages may not suit everyone, and it is important to fully understand the terms, risks and long-term financial implications.

The team at Mortgage Required will be happy to talk through Interest Only Mortgages with you. Give us a call on 01628 507477 or email team@mortgagerequired.com 

 

Recent posts

Skipton Building Society launches ‘Delayed Start’ mortgage meaning first time buyers won’t be required to make repayments for the first three months. 

According to a survey by Skipton, first time buyers who bought their home in the last five years found that in the first three months of living there, they were spending upwards of £30,000.

If you have recently moved into a property with a garden that requires a little TLC, or you’d like to get on top of your current green space, check out our tips.

High street lender, NatWest, have launched a new product to help first-time buyers purchase a property with assistance from a family member or friend to get them on the property ladder sooner.

‘Buy Now, Pay Later’ (BNPL) schemes, such as ‘Klarna’ are short-term loans that allow shoppers to make a purchase, but delay paying for it for an agreed amount of time.

Klarna is one of the most popular BNPL services with 18 million customers in the UK alone, and offers interest-free payment options which is appealing to shoppers. However, does it affect a mortgage application?

We look at how to get the best Buy to Let mortgage rate, what's in store going forward, and options as a landlord with increasing costs.

Throughout this past week, lenders have continued to reduce their mortgage rates giving borrowers in the UK some welcome news following the change in global tariffs under US President, Donald Trump.

Did you know that buying a house, or relocating is in the top 10 most stressful life events?

Stress of course is an unavoidable part of life and there are many reasons why people experience stress, not just buying a house!

There are lots of effective ways to manage and reduce stress, check out our tips to help you.

With the stamp duty relief ending in England and Northern Ireland, we have listed the top 10 cheapest areas for first-time buyers as published by Rightmove.