Interest-only mortgages work a little differently to a traditional repayment mortgage. With a traditional mortgage, your monthly repayments cover both the sum that you have borrowed, and the interest being charged on that loan. When you reach the end of your mortgage term, say 25 or 30 years, then the loan is repaid in its entirety providing all payments have been made in full and on time.
With an interest-only mortgage, your repayments only cover the interest being charged on your loan. However, you must be able to prove that you have a credible repayment strategy in place when applying for a mortgage to then repay the sum you borrowed in full at the end of the mortgage term.
A predominant feature of an interest-only mortgage is that your monthly repayments will be significantly lower. Every month, you’ll only be paying off the interest charged on the sum you’ve borrowed, rather than the actual borrowing itself.
Who Do Interest-Only Mortgages Suit?
The different structure that an interest-only mortgage boast makes it particularly attractive to certain types of borrowers; particularly those who can demonstrate they have a credible repayment strategy and those who have varying incomes, or who simply want more flexibility when it comes to how and when they pay off their mortgage balance.
For example, you may enjoy a large annual bonus. With an interest-only mortgage, you can cover the more modest monthly repayments with your basic salary, and then put some of that bonus towards reducing the capital you owe on the loan as and when it suits you.
Similarly, if you are self-employed, whether that means working as a contractor or running your own business, then your income can fluctuate significantly from one month to the next. An interest-only mortgage can give you far greater flexibility, allowing you to pay more towards clearing the mortgage capital when your finances are at their healthiest.
With an interest-only mortgage, you can effectively customise your repayments to suit your own schedule as your finances change, rather than being committed to the same repayment every month. You should also regularly review your repayment strategy to ensure that it’s on target to repay the loan.
Interest-only mortgages are also a popular choice for buy-to-let landlords. This is because they allow landlords to maximise their monthly rental yield, thanks to the lower mortgage repayments, and allow them to reduce the mortgage capital whenever it best suits them. What’s more, the lower repayments mean landlords can devote the saved money towards other areas of their portfolio.
Another point to bear in mind is that if your circumstances change and you no longer need to take advantage of the flexibility offered by an interest-only mortgage, then you may be able to remortgage over to a standard mortgage.
At Large Mortgage Loans, we can help you work out whether an interest-only mortgage would work in your circumstances and what sorts of interest-only products you might qualify for.
Do Lenders Still Offer Interest-Only Mortgages?
It’s true that interest-only mortgages are not offered by quite as many lenders as was the case before the financial crisis. Many high street lenders have moved away from this market to focus on simpler, straightforward products.
However, there are still some lenders actively offering interest-only mortgages, though these are unlikely to be firms that many borrowers are familiar with.
At Large Mortgage Loans, we have long-standing relationships with all of the lenders who currently offer interest-only deals and can help you find the right product to match your needs.
How A Specialist Broker Can Help You Find the Right Interest-Only Mortgage
Many of the lenders who do still offer interest-only mortgages don’t lend directly to borrowers. To get your hands on these deals, you will need to apply via a specialist mortgage broker like Large Mortgage Loans.
It’s also worth remembering that different lenders have different requirements when it comes to approving interest-only mortgages – whilst some lenders will be happy to lend to you, you may have difficulty getting an approval from others.
Because Large Mortgage Loans have significant experience in this area of the market, and well-established relationships with lenders, we can help you identify which lenders will be happiest considering your case and which deals best match your circumstances.
