As the name suggests, an interest only mortgage requires that you only pay the interest element of your mortgage in your monthly mortgage repayment. Crucially, there is no repayment of capital during the mortgage term. This has the benefit of reducing your monthly payments, although making the interest-only mortgage payments more affordable now can come with some significant disadvantages further down the line.
When considering an interest-only mortgage, remember that at the end of the mortgage term you will be required to repay the loan capital in full. You therefore need to either make provision for this capital repayment by setting up a separate savings or investment plan. If you can’t do this you will probably need to sell your home to repay the mortgage at the end of the loan period.
Most people are buying a house for them to live in and therefore the need to sell your home at the end of the mortgage term is unlikely to be a sensible or desirable option. You should therefore have a plan for repaying the loan at the end of the term or before. Also, it may be prudent to protect your family by taking taking life insurance to cover the mortgage sum in the event that you were to die, leaving them with a large mortgage still owing on your home.
It should also be noted that with a repayment mortgage over say 25 years, the interest you are paying is calculated every month based on the total outstanding mortgage sum. With a repayment mortgage, the outstanding mortgage sum is reducing over time, slowly at first but faster after the first 5 or 10 years of say a 25 year mortgage term. On an interest-only mortgage the outstanding mortgage sum stays the same throughout the loan term. You will therefore pay more interest on an interest-only mortgage than with a repayment mortgage.
For more information contact us or speak to a mortgage adviser on 01628 507477.
Recent posts
According to a report in the Guardian, senior ministers have asked Treasury officials to look into a “proportional” property tax to see how it would work as an alternative to the existing stamp duty land tax on owner-occupied homes.
More than a quarter of UK adults in long-term relationships (26%) have reported that despite living together, they keep their finances separate from one another.
There has been a rise in both rent and mortgage costs over the last three years, with renters seeing a greater increase in their monthly payments than those with a mortgaged property.
Delayed Start Mortgages
20 days ago
The new Delayed Start Mortgage launched by Skipton Building Society allows first time buyers to postpone the first three mortgage payments. This product has been designed to help soften the blow of moving in costs for first time buyers.
Green Mortgages | Rewards and Benefits
22 days ago
Mortgage lenders are starting to recognise their “Green” responsibilities when it comes to the different products they offer.
A recent study by Boon Brokers where 1,000 people who had used an estate agent over the last year were surveyed, showed that a whopping 52% said they were pressured into using the estate agents’ in-house mortgage broker.
When will mortgage rates fall further?
25 Jul 2025
Analysts are predicting further rate cuts this year, with the next one possibly coming down to 4% when the Bank of England’s Monetary Policy Committee meet on Thursday 7th August 2025.
The Financial Conduct Authority (FCA) has shared new changes to mortgage rules with the aim to simplify remortgaging, and encourage competition within the mortgage market.
More information
Trusted by
