Interest Only

Interest only mortgages are a type of mortgage where only the interest is repaid. The full capital amount remains outstanding during the mortgage term and is repaid in one lump sum at the end of the term. Consequently, lending criteria for this type of mortgage is very strict and they are rarely offered for residential properties.

Unlike a repayment mortgage, the amount of debt outstanding does not reduce over time. There is no guarantee that the investments chosen will grow sufficiently to repay your loan.

Lenders require evidence that a customer will have in place a clear credible repayment strategy and that the repayment strategy has the potential to repay the capital borrowed.

Repayment strategies may include deposits or investment product(s), pension(s), periodic repayment of capital from irregular sources of income (e.g. bonuses), the sale of another property or other land or other acceptable methods which meet lending criteria.

This means that the mortgage payments each month will be lower than those of a repayment mortgage for a similar loan and term. Where the repayment of capital is an investment the investment runs alongside the mortgage but is separate from it; the cost should be taken into account when calculating the overall costs of the mortgage arrangement.

Every month, you then pay this interest to the lender for the duration of the loan. The lender calculates your monthly repayments depending upon how the rate you have chosen is set. The monthly interest payments may vary dependent on whether the interest rate is fixed or variable. At the end of the loan period, the lender will expect the initial capital they lend you to be repaid in full by whatever means you have arranged. 

Also See:

Flexible & Offset Mortgages Repayment or Capital & Interest Mortgage

A MORTGAGE IS A LOAN SECURED AGAINST YOUR HOME.  YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. 

How much will you pay for our services?

You will receive a key facts illustration when considering a particular mortgage, which will tell you about any fees relating to it. We may charge a fee for sourcing and arranging a mortgage, the maximum fee we charge is £250.  We may also receive a commission from the lender which will be detailed in the illustration.

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