How Do Interest-Only Mortgages Work
With so many types of mortgages available, it’s difficult to home in on what’s right for you. It can also be difficult to know how certain mortgages differ from other types. A question we’re often asked here at Agentis is how an interest-only mortgage works. We’re covering this in our quick guide.
How an interest-only mortgage works
With a traditional mortgage, you’d typically pay back some of the interest and the loan value each month. However, with an interest-only mortgage, you ONLY pay back interest each month. This keeps the overall monthly costs down. However, it won’t reduce the debt you owe. This is made payable at the end of your mortgage term.
This type of mortgage is not typically handed out to first-time buyers. Residential interest-only mortgages come with strict lending criteria. In fact, some lenders will only approve these loans for high net-worth individuals.
The loan will only typically cover 50% of the property’s value as well, so you’ll need to make sure your income and savings can comfortably afford that.
You will also need to provide a repayment plan. This can include evidence of savings, an investment portfolio, pension pot or other assets you plan to sell. Don’t know where to start with a repayment plan? Specialist mortgage brokers can help.
When you come to the end of your mortgage term, the typical action is to pay off the loan. However, if this isn’t possible, there are a number of options available, including switching to a repayment plan, extending your mortgage or remortgaging.
Who is the interest-only mortgage suitable for?
In short, the interest-only mortgage is suitable for wealthy individuals or current homeowners with plenty of equity. Interest-only isn’t just for residential property purchases either. It’s also suitable for buy-to-let investments.
Speak to a mortgage advisor
Speaking to a mortgage advisor can help keep any uncertainty at bay. We’ll talk you through the interest-only lending criteria, how it works, and make sure you have the right type of loan for your circumstances. Book your free initial consultation with us today.
