An interest-only mortgage is a home loan where your monthly repayments only cover the interest you are charged on the amount you borrowed. As you are not repaying any of the debt itself, the monthly repayments can be significantly less. However, you will need to have a plan in place to repay the balance of the mortgage at the end of your term. This could include an endowment policy, a pension, an ISA or the sale of the property itself
Who might be suited to an interest only mortgage?
Interest only as a repayment method can be suitable for all types of borrowers ranging from first time buyers to buy to let investors. Although not relevant or best for all, this type of mortgage can be advantageous for many reasons when individual borrowing needs and personal circumstances are taken into consideration.
In areas where prices are high, such as London and the South East, an interest-only mortgage can be seen by some as a cheaper option than renting. There’s also the view of certain buyers that, while you may not be paying off the actual capital of the loan, you are on the property ladder and you do own your own home.
Some Buy-to-let investors use interest-only mortgages because it enables them to keep their monthly mortgage commitment to a minimum whilst opting to repay capital at periods throughout the loan if required. It can also reduce the monthly cost of the property ownership if the investor is looking for capital growth and not the longer term income.
This type of loan can also be well-suited to the self-employed or those who have irregular monthly income. In this case, the lower monthly mortgage repayments can help when budgeting.
Interest only mortgage Advice
With our team who specialise in interest only mortgages, we can access the whole of the market to help you find the right deal. In many cases, our ongoing working relationships with specialist lenders means we may be able to access better interest-only mortgage rates than if you approached lenders yourself. For more information, please contact our team.