What Is An Interest Only Mortgage?
An interest only mortgage is where you only repay the lender interest (not capital) on the mortgage or loan for the period of the borrowing.
An interest only mortgage means that your monthly repayments will be a lot lower however no capital is paid off during the mortgage term.
Who Offers Interest Only Mortgages?
Not all lenders offer interest only mortgages and those that do have set criteria to determine whether they are happy to lend on this basis.
Lenders are keen to ensure at the end of the mortgage term the loan will be repaid.
Criteria for lenders will vary but all will want to understand how you intend to pay off the mortgage at the end of the term. A repayment vehicle strategy will be required.
Some lenders will accept sale of property as a way of paying off the debt. Some will want to see a saving plan such as regular investment into ISAs or investment vehicle.
Lenders will want to see statements of your investments as evidence that a repayment vehicle is in place.
Most lenders will only offer an interest only mortgage if the loan to value (LTV) is lower than a set percentage of the value of the property you are mortgaging.
Some lenders will require a part and part strategy for any borrowing over a set limit e.g. 60%.
What is a Part & Part Mortgage
With some lenders it is possible to split your mortgage repayments on a interest only mortgage and a capital repayment mortgage basis.
This will reduce your mortgage balance over time, but at the end of the term there will still be an outstanding capital sum to repay.
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