Interest Only Mortgages Made Simple
Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon.
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Straightforward mortgage advice from expert brokers. Finding the perfect mortgage just for you without the jargon.
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Interest Only Mortgages Made Simple
With Interest Only Mortgages your monthly payments are just that – interest. This means you will still owe as much at the end of the term as you do at the start.
A scary thought for some people with horror stories of endowment shortfalls and getting to the end of the term with no real way of repaying what you owe.
Whilst interest only mortgages are certainly not ideal for most people, with the right planning and consideration, having some or all of your mortgage on interest only can be a great way of keeping your monthly payment low.
It is perfectly normal to have any investment properties on an interest only basis, that way you maximise the monthly return on your investment. You can learn more about investment properties on our buy to let page.
You must, of course, have a plan for how to repay the loan in the future. This could include things like overpayments when you get a bonus or the sale of other assets or maybe investments in other things that will give you a return. It could also be a sale and down-size, as long as you will have enough equity to realistically do that.
If you are planning an interest only mortgage it is even more important to seek proper advice and consider the eventual repayment strategy. Add this together with regular reviews and checks and you will be as certain as you can be that you won’t find yourself with a large amount of money to find suddenly at the end of the term.
Do Interest Only Mortgages need an endowment?
No, an endowment is just one type of repayment vehicle that can be used. There are lots of others to choose from and you can sometimes even use the sale of the property. This would only be suitable though if you have enough equity to down-size or if it is not your main residence.
Can I reduce the balance on an interest-only mortgage?
In most cases yes, this will mean making overpayments. Most lenders will allow this up to certain limits, some lenders have slightly different rules on this though so be careful to check. Making regular or annual overpayments can be a good way to bring the balance down on an interest only mortgage.
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Can I have just some of my mortgage on interest only?
Yes, absolutely. This is called “part and part” and there is a choice of lenders that will do this. Usually you would be able to have up to around half the properties value on interest only and then anything over that would be on a repayment mortgage.
Is there a minimum income for an interest only mortgage?
It’s fair to say that there is not a massive choice of lenders for a residential interest only mortgage and the ones that will provide one do tend to have certain extra criteria to meet. This does mean a minimum income in some cases and that minimum figure is well above the national average! But, there are one or two lenders who do not have this minimum income and so there is an option for most people should they wish
How much deposit do I need for an interest only mortgage?
Lenders that lend on an interest only basis will tend to want to keep their risk a little lower than a repayment mortgage. With this in mind it is usual for lenders to limit your interest only amount to around half of the properties value. There are certain exceptions to this but these would need to be reviewed individually. For art and part mortgages, you can usually borrow more than half but anything over that would generally need to be on a repayment mortgage.
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