Interest Only Mortgages FAQS
- MRG
- Nov 15, 2024
- 3 min read
An Interest-Only Mortgage is a type of mortgage where the borrower only pays the interest on the loan each month, rather than paying back the amount initially borrowed. This means that at the end of the mortgage term, the borrower still owes the full amount borrowed. Learn more >
Interest Only Mortgages FAQS
How much can I borrow with an Interest-Only Mortgage?
There is no one answer for this as the criteria varies from lender to lender, when looking to apply for an Interest-Only Mortgage. Some lenders will need you to be earning a minimum income, and some will need a minimum amount of equity left in the property at the end of the term, or a mixture of the two. The amount you can borrow will also be dependent on your personal income and commitments, the same as a standard mortgage.
How much deposit do I need for an Interest-Only Mortgage?
The minimum deposit for an Interest-Only Mortgage will be based on each lenders own individual requirements. If you are looking to sell the property and downsize at the end of the mortgage term, some lenders have a set minimum amount, and others will need you to show that the amount you will have left at the end of the term will be able to purchase you a smaller property in an area that you would move to upon down-sizing.
Can I get an Interest-Only Mortgage for Buy-to-Let?
Yes. An Interest-Only Mortgage is commonplace for Buy-to-Let mortgages, as the lender will accept that the property will be sold at the end of the mortgage term to repay the loan.
What’s the process to apply for an Interest-Only Mortgage?
To apply for an Interest-Only Mortgage, the main steps would involve:
Initial enquiry.
Agreement in principle.
Mortgage application (proof of repayment vehicle, income verification, valuation etc)
Mortgage offer issued.
Solicitor progression.
Completion and release of funds.
Can I keep my payments down with Interest-Only Mortgage?
Yes, an Interest-Only Mortgage will have lower monthly payments than a Capital Repayment Mortgage. You need to consider this very carefully though as you will need a plan to repay the loan, at the end of the term.
What is a ‘repayment vehicle’ in relation to an Interest-Only Mortgage?
To apply for an Interest-Only Mortgage you will need to show that you have a plan to pay the loan off at the end of the term, this is called the ‘repayment vehicle’. This could be the sale of your property at the end of the term, savings, investments, or pension lump sum.
Can I get an Interest-Only Mortgage with bad credit?
As with most forms of borrowing, having adverse credit can have an impact on; either your ability to obtain finance, or the terms that are available to you. An Interest-Only Mortgage is no different in this regard.
Will an Interest-Only Mortgage cost me more over the term?
Yes. As with an Interest-Only Mortgage your capital will not be reducing and so you will continue to pay interest on the full balance throughout the entire term.
Will I pay a higher Interest rate on an Interest-Only Mortgage?
Generally speaking, you will not pay a higher interest rate for an Interest-Only Mortgage, compared to a Capital Repayment mortgage. As there are less lenders willing to offer an Interest-Only Mortgage, your choices will be limited which may mean that the products available are higher than if you chose Capital Repayment.
I have an Interest-Only Mortgage now, can I just switch it to a new lender?
Yes, you can apply for a new Interest-Only Mortgage. You will need to make sure you can meet the criteria of the new lender, including being able to prove that your ‘Repayment Vehicle’ is still relevant, and plausible.
Book A Call To Discuss Interest Only Mortgages
If you have an enquiry and would like to discuss Interest Only Mortgages in more detail, please get in touch or schedule one of our Interest Only Mortgage broker experts to give you a call.
At MRG Private Clients, we believe in providing our clients with personalised guidance and support when it comes to making important financial decisions. We are based in Medway, Kent but offer our specialist mortgage services nationwide. Learn more about our specialist mortgage services >
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