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Interest-only Mortgages

A way to get on the property ladder with cheaper monthly payments. However, it’s not for everyone…

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Interest Only Mortgages

With an interest-only mortgage, you only pay the interest charges on your loan.  You don’t pay back any of the original capital borrowed within your monthly mortgage payment.  This means your monthly payments will be lower than on a capital and interest mortgage, but at the end of the term you will still owe the original amount you borrowed from the lender.  You will need to have a suitable repayment strategy in place to clear the mortgage in full at the end of the term.

How does an Interest Only Mortgage work?

If you have a capital and interest mortgage, each month you pay off the interest and some of the capital.  This will guarantee that the mortgage will be cleared at the end of the term.

If you have an interest only mortgage, you will pay the mortgage off at the end of the term with a repayment vehicle such as savings, investments or other assets you may have.  You will need to regularly check to ensure your repayment strategy is sufficient to pay the mortgage off at the end of the mortgage term.

What is the difference between interest only and repayment mortgages?

A repayment mortgage is also referred to as a capital and interest mortgage.  This is because every month, you pay back both the interest on your mortgage and some of the capital borrowed. With an interest-only mortgage, you only pay back the interest on your loan. This means your monthly payments are much lower, but you will still owe the original amount borrowed at the end of the mortgage term.  You will need to have a suitable repayment strategy in place to repay this.

Ways of repaying an interest only mortgage

If you have an interest only mortgage, your mortgage provider will want their money back at the end of the mortgage term.  You will have only paid interest on the loan throughout the mortgage term so you will still owe the original loan amount borrowed.  You can use savings, investments or other assets you have (known as ‘repayment vehicles’) to pay off the total amount borrowed at the end of your mortgage term.

Do you pay more for an interest only mortgage?

In most cases, the interest rate charged is the same for repayment and interest only mortgages although some mortgage providers do have separate products specifically for interest only borrowing.  In some cases, these products may be slightly more expensive than a repayment mortgage.

Retirement interest only mortgages

There are many similarities between and retirement interest only mortgage and a standard interest only mortgage.  The main differences between the two are that with a retirement interest only mortgage, the loan is usually only paid off when you die, move into long term care or sell the house.

In addition to this you only have to prove you can afford the monthly interest repayments throughout the life of the loan.  With a standard interest only mortgage you may need to prove you can afford the mortgage on a repayment basis even though you will only pay the interest on the loan each month.

What is an interest only retirement only mortgage?

You will only pay the interest on the amount you borrowed.  There is no minimum age requirement for a retirement interest-only mortgages, but they are generally aimed at older borrowers.  Older borrowers would include over 55s, over 60s and pensioners who might find retirement interest only mortgages easier to qualify for than a typical interest-only mortgage.  This is because you are able to spread the mortgage over a longer term than a standard residential mortgage.

How do I repay a retirement interest only mortgage?

A retirement interest only mortgage will be repaid if the house is sold, when you die or if you move in to long term care.  You are also able to make overpayments to reduce the borrowing if you wish. Making overpayments to reduce the loan will reduce the amount of interest you pay. This is because the interest is calculated on the amount you owe.

Where can I get a retirement interest only mortgage?

To ensure you are receiving the correct advice you should speak to a specialist mortgage adviser.  The Mortgage Centres have the experience and knowledge to help you decide whether a retirement interest only mortgage is right for you. Get in touch today to discuss your options.

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