Interest Only Mortgage
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Interest only – is it right for you?
If you currently have an interest only mortgage on your home, you may be aware of the potential benefit of lower monthly payments; however, are you aware of the potential risks you face by not clearing or reducing the original debt?
It is best for you to chat over your objectives and circumstances with an independent mortgage adviser who will assist you in finding the right repayment or interest only mortgage to suit your situation.
If you already have an interest only mortgage on your home, it may be that you don’t meet the lenders current criteria for interest only. This can mean that you are stuck on the lenders standard variable rate which is generally a considerably higher rates than the best mortgage deals available today. Because of this you may be able to switch to a repayment mortgage where the monthly payments are similar.
Is it cheaper to have an interest only mortgage than a repayment mortgage?
Your monthly payments are likely to be less on interest only however because the mortgage debt won’t be reducing, repayment mortgages are normally cheaper in the long run.
How much deposit or equity do I need?
If you choose to have any part of your mortgage on an interest only basis you will normally need a minimum of 25% deposit or equity within your home.
Do I need a repayment vehicle to repay an interest only mortgage?
For interest only mortgages, held on your home… lenders now require evidence of a credible repayment vehicle, so they know at the end of the term you will not be left in a ‘sticky situation’. Lenders will accept a repayment vehicle such as an existing endowment, pension or perhaps the sale of other investment property. If you have a large amount of equity within your home, some lenders may still accept the sale of the mortgaged property (your home) as the repayment vehicle.
Interest only as a repayment type for Buy to Let mortgages is treated differently by most lenders and sale of the mortgaged property is typically an acceptable repayment vehicle.
If I choose an interest only mortgage is there anything else I should consider?
You will be aware that at the end of an interest only mortgage you will need to clear the original debt. You may feel that with property prices rising you could sell your home for more than you paid for it to clear the loan and have some equity left over. This is probably true, but you may not have enough equity to purchase a new home close to your friends and family and may need to move to an area where house prices are more affordable.
Our independent mortgage brokers can assist you in finding the right repayment or interest only mortgage to suit your situation.
Is interest only best for you… in 4 simple steps
Step 1
Book a time to chat over your objectives and circumstances with a personal mortgage adviser.
Step 2
Let your personal mortgage adviser save you time and money by researching the market and finding the best option for you.
Step 3
Once you are happy with the advice your mortgage adviser will apply online for the best mortgage product for you.
Step 4
Your dedicated relationship manager will correspond with the lender until your new mortgage product begins. We will remind you when the new deal is ending too!