What Is An Interest-Only Mortgage?
Your home may be repossessed if you do not keep up repayments on your mortgage.
With a typical residential mortgage, repayments involve paying back interest and some of the loan amount each month. However, with an interest-only mortgage, you’re only expected to pay interest on the amount borrowed. This means you don’t pay back the actual loan until the end of your term. This might sound good, but there’s a catch…
In order to qualify for an interest-only mortgage you need to be able to prove that you can pay back the loan at the end of your term. Also known as a repayment plan, this can involve demonstrating substantial savings or saving plans, a portfolio of assets and investments, or a sufficient pension pot.
Also, lenders typically favour wealthier borrowers and first-time buyers are very unlikely to secure this type of loan.
What’s more, the loan will only typically cover 50% of the property’s value. This means you’ll need to make sure your income and savings can comfortably afford the rest of the value as a deposit.
Get mortgage advice
As it can be more difficult to secure this type of loan for a residential or commercial mortgage, it’s advisable to speak to a mortgage specialist to see whether you’re likely to qualify for this type of mortgage, and how to increase your chances of securing the loan. A broker can also run through the pros and cons so you know whether the benefits are worth it. If you do get accepted, you stand to benefit from lower monthly repayments.
Buy-to-let investments are a popular use for the interest-only mortgage.
We hope this brief guide has given you a better idea of what an interest-only mortgage entails.
Need advice on how to boost your savings for an interest-only deposit, or how to put a sufficient repayment plan together? The team at Derngate Wealth Management Northampton can assist. Book your initial consultation with us today – your expert mortgage broker in Northampton.