Interest only Mortgages
Many clients wish to borrow an interest only mortgage because of its lower monthly repayments and the flexibility of using various repayment vehicles to pay off the capital. Fewer lenders offer interest only mortgages than used to be the case, but there are still several prepared to lend on this basis, as long as the borrower can demonstrate how the loan will be repaid.
With this in mind, interest only mortgages will not be available to everyone, and they will only be an option if there is a justified and logical reason for you to have one. In short, if you want an interest-only mortgage, expect the application process to be very thorough. Lenders will be rigorous in their need to understand your motivations for this type of finance, as well as your plans.
How do Interest only Mortgages work?
If you opt for an interest-only mortgage, you will make interest payments for the first period of the loan. How long this period lasts will depend on the length of your mortgage and how much you borrow. Then, you will need to pay off the principal.
In the past (when this type of mortgage was more prevalent and criteria less strict), borrowers might have sometimes successfully paid off their interest, but have then reached the end of their loan and have been unable to pay off the principal amount. However, this is rarely the case for high-net-worth individuals who usually have income, assets or investments that will support the repayment of the principle, even if it is substantial. High-net-worth borrowers are usually prudent when it comes to forward planning and have the tools and advisors available to them to ensure that generating or saving capital to pay off the principal is a smooth and relatively effortless process. As such, this type of property finance continues to be a very viable and advantageous way of borrowing if you have significant assets or wealth.
Sometimes, your lender will offer you the option to pay off part of the principal during the initial interest-only period. Whether or not you opt to do this will depend on how you plan to exit the loan, your financial situation and how useful this would be to you from a planning perspective.
So… come on, why choose us?
Because we’re experts in interest only mortgages
Interest-only mortgages are common for buy-to-let investors but are not as readily available for residential mortgages because of the risks associated with them. However, if you have the right profile, getting an interest-only mortgage will be possible. Doing so will often be financially beneficial: interest-only mortgages will usually reduce your monthly mortgage repayments by quite some margin compared to other repayment structures.
Lenders will look carefully at affordability, and these mortgages will often come with a lower loan to value ratio as lenders look to find comfort in lending. It’s not uncommon for lenders to request assets under management as well. It’s worth noting that an interest-only mortgage will always be out of reach if you can’t afford the monthly payments on a capital and interest mortgage.
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AS A MORTGAGE IS SECURED AGAINST YOUR HOME, IT COULD BE REPOSSESSED IF YOU DO NOT KEEP UP THE MORTGAGE REPAYMENTS.