Interest Only Mortgages
An Interest only mortgage allows you to pay just the mortgage interest each month and not the capital borrowed. This results in lower monthly payments than on a repayment mortgage, but at the end of the term, you’ll still owe the original amount you borrowed from the lender. Before lending money on an interest-only basis, mortgage lenders will want to see that you have a robust repayment strategy in place.
We’ve answered the questions you might have
Why can it be difficult to obtain an interest only mortgage?
Prior to the financial crisis the interest-only lending market was booming, and borrowers could obtain mortgages on an interest only basis with most lenders without having to prove how they would pay back the debt. Historically, endowment policies were sold alongside the mortgage to act as a repayment method. In many cases, the investment growth of these policies wasn’t as much as anticipated and left borrowers with a shortfall when the mortgage term had finished.
In recent years the Financial Conduct Authority has forced lenders to put in place measures that ensure borrowers have a credible plan in place to repay the mortgage. As a result of this and to reduce credit risk, lenders have significantly tightened their underwriting policy when it comes to interest only mortgages, and many have completely withdrawn from this market.
What are the advantages of an interest only mortgage?
- Lower monthly payments which frees up capital for other uses.
- Flexibility to repay the loan with other repayment vehicles on an ad hoc basis.
- Tax-efficient offset facilities available with several interest only products.
- There can be tax advantages for buy-to-let investors.
How can we help?
It isn’t uncommon for our clients to tell us about their past frustrations in trying to find an interest only mortgage. Knowing which lender to approach is key when it comes to this type of mortgage as lenders have different criteria requirements; for example; some lenders will require you to earn a large basic salary whilst others want you to have a minimum level of equity in the property. Some allow you to use down-sizing as a repayment strategy whilst others require sight of investments that are professionally managed by a Wealth Manager. Which lender to approach completely depends on your circumstances.
At Jordan Lynch we have a vastly experienced team of brokers that have been helping clients secure bespoke interest-only mortgages since 2006. Our team is nothing but professional and will only work on finding an interest-only mortgage if it’s the right thing for you.
From High Street lenders to smaller Building Societies and Private Banks, we have access to the whole of the market and can help you find the right interest only mortgage product for your particular needs. Please get in touch with the Jordan Lynch team to find out more.
* It should be noted that Jordan Lynch have given no advice as to the suitability of these repayment vehicles and have made you aware that it is your responsibility to ensure the mortgage is repaid in full at the end of the term. Please also bear in mind that the total interest payable will be higher than on a capital repayment mortgage. This is due to no capital repayments being made and as such interest is charged on the outstanding balance throughout the mortgage term.