Interest Only Mortgages
Lower monthly payments, but you'll need a credible plan to repay the amount borrowed at the end of the term
An Interest Only Mortgage, while not available to everyone, can be a very useful way for people to purchase a house. Mortgage Fit are able to offer the necessary advice that you will need in order to access this, often complicated financial instrument. We will be able to assess eligibility as well as advise on the various pros and cons associated with Interest Only Mortgages.
Important: repaying the amount borrowed
Interest-only mortgages can offer lower monthly payments than repayment mortgages, but your payments do not reduce the amount originally borrowed. You'll need a credible repayment strategy to repay the outstanding balance at the end of the mortgage term. If that strategy is unsuccessful, you may need to sell your property or find alternative funds to repay the mortgage.
Your home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. A mortgage advice fee may apply depending on your circumstances and the services required. We'll explain the amount or how the fee is calculated, when it becomes payable and any commission we may receive from a lender before providing advice.
What is an Interest Only Mortgage?
In the past, Interest Only Mortgages were abused and given out to anyone and everyone. This was one of many causes of the laws around lending getting much stricter after the credit crunch in 2008. Interest Only Mortgages have since been few and far between but in recent years have given lenders the opportunity to service this niche market, but under their own strict terms. Since then it has been the reserve of higher net worth clientele or buy to let investors and landlords.
How Does It Work?
With an Interest Only Mortgage, your monthly payments only cover the interest on the loan. The capital remains unchanged throughout the mortgage term. At the end of the term you need a plan in place to repay the original loan — this is often referred to as a “repayment vehicle.” Lenders will require evidence of a credible repayment plan before offering an Interest Only product.
Who Can Get One?
Eligibility criteria vary between lenders but typically include:
- Higher income levels or net worth
- Larger deposit — typically 25% or more
- A credible and evidenced repayment vehicle
- Strong credit history
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Find out whether an Interest Only Mortgage could be suitable for you.