Regardless of your current financial situation, from great credit to credit-challenged, our interest-only mortgage application form is the same for everyone. Applying for an interest-only loan with us is effortless.
Overview
What is an Interest-Only Mortgage?
An interest-only mortgage allows you to pay only the interest on your mortgage loan during the loan term. Once the term ends, you are not obligated to repay the loan.
With an interest-only mortgage, your monthly payment pays only the interest charges on your loan, not any of the original capital borrowed.
This means your payments will be less than on a repayment mortgage, but you’ll still owe the original amount you borrowed from the lender at the end of the term.
Before lenders grant you an interest-only residential mortgage, they will ask for evidence of your ability to repay the full amount at the end of the loan term. Otherwise, you may need to remortgage your home.
What is the Difference Between Interest-Only Mortgages and Repayment Mortgages?
There are two options to repay your mortgage:
- Repayment
Repayment mortgages allow you to pay back a portion of the monthly loan and the interest. If you make all your payments, you are guaranteed to repay the entire loan by the end.
- Interest-only
An interest-only mortgage allows you only to pay the interest. You’ll still owe what you borrowed at the end of the term. Your lender may offer you the option to change your repayment mortgage into an interest-only mortgage.
You can borrow from as little as £50,000
Available from mainstream lenders to private investments
Short to long repayment terms available
Within 10 minutes we will call you to discuss your loan
Submit your information on our website
We aim to find you the best finance we can at the best rates possible
History of Interest-Only Mortgages
The 2008 financial crisis saw an interest-only lending boom.
Customers could borrow on an interest-only basis without showing lenders how they would repay the debt. It was discovered that many thousands of customers who were only interested in borrowing money would have difficulty paying off their home loans later.
It’s very difficult to borrow money on an interest-only basis. Some lenders don’t offer interest-only loans, and others require a deposit and a repayment plan to repay the capital. Buy-to-let is the exception. Lenders generally allow landlords to pay their mortgages in interest only.
You can sell your property or take out a new loan if you cannot repay the borrowed amount.
How to repay
How Does an Interest-Only Mortgage Work?
Your mortgage lender will require you to approve a repayment plan before lending money to you on an interest-only basis. While acceptable repayment plans vary from lender to lender, they may include ISAs or stock market investments. Your lender will likely conduct periodic checks to ensure you are on track to repay the amount.
Lenders used to allow borrowers to count on the possibility that they would receive a future windfall, such as an inheritance or bonus. But very few people will now accept this. To make monthly payments more affordable, you can remortgage for a lower mortgage rate or switch to a repayment loan.
You should act immediately if you are concerned about the repayment of an interest-only mortgage amount. You will have fewer options if you delay repaying the interest-only mortgage. It is essential to get financial advice as soon as possible.
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We offer a wide range of interest-only mortgages in the UK, and we guarantee that we will help you source the best interest-only mortgages and products tailored to your requirements. If we can not help, then it is unlikely that anyone else can. So, what are you waiting for? Apply for your mortgage online today!
Interest-Only Mortgages FAQs
Each lender will have varying terms and conditions; however, a typical term for an interest-only mortgage could be as little as two years with a maximum lifetime of 25 years.
If you cannot pay off your mortgage once your loan ends, you can request that your lender extend the term. This will likely involve an affordability assessment, but if approved, you will be granted extra time to pay off the remaining mortgage.
Fewer lenders offer interest-only mortgages, and banks have set strict requirements for qualifying for one. Generally, only a well-qualified borrower is eligible for one.
You can pay your mortgage back in several ways. First, you can pay the capital off in a lump sum using savings and investments. Alternatively, you can sell the property and use the proceeds to repay the loan; however, this depends on the housing market conditions and property value. Or, you can remortgage to a repayment mortgage with a new loan term. This increases your monthly payments but allows you to spread the repayment over a new term.
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