Correct at 31/03/2021
If you’re looking for an interest-only mortgage, we’re here to help.
Whether over the phone, or using our online Mortgage Finder, it’s easy to get your mortgage journey started. Just answer all the questions, such as how long you want your mortgage to last, how much deposit you have and how much you’re looking to borrow, and we’ll narrow down your search to all the deals you could qualify for.
Your expert adviser will be able to talk you through your options and help you decide whether an interest-only mortgage is right for you. Once we’ve found the right deal and you’re ready to go ahead, we’ll guide you through the application process from start to finish, and you can track its progress via the online portal 24/7.
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An interest-only mortgage is a type of loan where your monthly payments only cover the interest you owe and not the capital you’ve borrowed. At the end of the term you’ll have to repay the full amount borrowed, with most people using savings or investments to pay off what they owe. Lenders will want to see proof that you’ve got a plan in place for repaying the mortgage capital.
The main advantage of an interest-only mortgage is that your monthly payments will be much lower compared to a repayment mortgage, where you repay both the capital and interest each month. However, with a repayment mortgage, you have peace of mind that there’ll be nothing left to pay at the end of the mortgage term. Whether an interest-only mortgage is right for you depends on your personal circumstances.
An interest-only mortgage enables you to only pay back the interest you owe each month rather than any of the capital you’ve borrowed. This means your monthly payments won’t reduce your debt, and instead the capital must be repaid in full at the end of the mortgage term. You can read more in our guide ‘What is an interest-only mortgage?’
You may be able to extend your interest-only mortgage term but you’ll have to check with your lender to see if they’ll allow this.
Many lenders offer interest-only mortgages, but to qualify you’ll need to be able to prove that you’ve got a savings plan in place to repay the capital at the end of the mortgage term. Options include a regular savings plan, an investment portfolio or pension.
When an interest-only mortgage finishes, homeowners must repay the amount they originally borrowed. If you’re coming to the end of your mortgage and are concerned about not being able to pay it off, the good news is that there can be other options, including switching to a repayment mortgage or remortgaging to cut costs. You can read more in our guide ‘What is an interest-only mortgage?’
If you want to pay off your interest-only mortgage early but haven’t come to the end of your current mortgage deal, you may have to pay an Early Repayment Charge (ERC). You can check the terms of your mortgage to see if this applies to yours. Most lenders will allow you to make overpayments, typically of up to 10% of the mortgage value each year without charge, which can help you to reduce your debt gradually.
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