- To 80% Loan to Value
- Part and Part To 85% Loan to Value
- Sale and Downsizing
- Pensions & Bonuses Considered
- No Credit Scoring Application for Some Lenders
- No maximum age for residential & buy to let mortgages
- Common Sense Underwriting
Interest Only Mortgages
Some of our clients wish to pay their mortgage on an interest only basis, whereby they pay the interest every month on the mortgage they owe, however they do not pay anything off the balance of the mortgage itself.
This is different to a repayment mortgage (often called a “capital and interest” mortgage), where both the interest is paid each month plus a small amount is also paid off the mortgage balance, with the aim of reducing the balance to £0 once the mortgage ends, as long as you make all of your payments on time and in full.
The benefit of an interest only mortgage is that they typically offer lower monthly payments than a repayment mortgage as you are only paying the interest.
Additionally, if you wish to take a mortgage out over a shorter period than the standard 25 years (called the mortgage term), such as 5 years, then the payments on a repayment mortgage could be very large as the entire mortgage balance would have to be paid back over the 5 year period. With an interest only mortgage, the mortgage term does not affect the monthly payments as you are paying only the interest and nothing off the mortgage balance itself.Read More >>
There are a number of disadvantages to an interest only mortgage. Firstly, when the mortgage ends you still owe the original amount you borrowed on day 1 and have to repay the balance using a credible repayment strategy such as downsizing, savings, pensions or other investments – often called an “interest only repayment vehicle”. The problem with this is that the repayment strategy may not have performed as expected and there could be a shortfall between the mortgage balance and the amount available to pay the mortgage back.
Another disadvantage is that, generally you will pay more interest in total over the term of an interest only mortgage compared to a repayment mortgage.
Clients who wish to arrange an interest only mortgage generally tell us that they are frustrated their existing bank, building society or lender only offer repayment mortgages.
The lack of availability can cause some difficulty for clients such as:
- Borrowers over the age of 60 who are planning to downsize at the end of the mortgage term, using the equity in the property to repay the mortgage and purchase a suitable, smaller property for their retirement
- Individuals who have substantial investments, or other properties in the background and wish to use these to repay the mortgage once it comes to an end
- Customers who receive large annual bonuses and wish to use these to repay the mortgage over a short period of time.
At RockHopper we can look to assist clients looking to arrange an interest only mortgage as long as they have a credible repayment strategy.
We appreciate everyone’s particular situation is unique, which is why we look at every enquiry on a case by case basis.
If you would like to see whether we can help you raise an interest only mortgage on a property, do get in touch for a free no obligation quotation.