MORTGAGE BROKER IN KENT, LONDON & SOUTH EAST
INTEREST ONLY MORTGAGES
An interest only mortgage is one where the borrower only pays the interest on the money borrowed, this means a balance will remain at the end of the mortgage term. A repayment strategy is required to pay the mortgage off at the end of the term.
What Is An Interest Only Mortgage?
An Interest Only mortgage is a type of mortgage where the borrower only pays the interest on the loan during the mortgage term, without reducing the principal balance. The full loan amount remains due at the end of the term. This differs from a repayment mortgage, where monthly payments cover both interest and a portion of the principal.
Who Is An Interest Only Mortgage For?
Interest Only mortgages are typically suitable for:
Residential, buy-to-let or even commercial borrowers
Individuals expecting large sums of money in the short-term
Those with a good repayment strategy, pension, other properties etc
Buy-to-let investors looking to benefit from the rental income in the short term
What Are The Advantages Of An Interest Only Mortgage?
Lower monthly payments compared to repayment mortgages, more disposable income during the mortgage term
Flexibility to invest money elsewhere that might have gone towards repaying the capital
Potential cash-flow benefits for buy-to-let investors
What Are The Disadvantages Of An Interest Only Mortgage?
The balance of the mortgage not being reduced, risk of negative equity if property values fall
Need for a solid repayment strategy at the end of the term
Potentially higher overall cost due to interest on the full principal amount throughout the term
Limited availability as many lenders have tightened criteria for these mortgages
Examples Of Where An Interest Only Mortgage Can Be Used:
Buy-to-let property investments
Property development projects
High-net-worth individuals with complex income structures and assets in the background
Bridging finance for those expecting a lump sum in the future (e.g., inheritance, business sale)
It's crucial to note that Interest Only mortgages carry significant risks if not managed properly. Borrowers must have a clear, realistic plan for repaying the capital at the end of the term. Many lenders now offer part-and-part mortgages, where a portion is repayment and a portion is interest-only, as a middle ground option.
Process And Documentation Required For An Interest Only Mortgage
Standard mortgage application process
Proof of income and affordability
Detailed repayment strategy plan
Evidence of assets or investments intended to repay the mortgage
Larger deposit often required (typically 25% or more)