Interest only remortgages
Updated 23rd September 2020
Interest only remortgages
A few years ago interest only mortgages were more common. It was seen as a cheaper way to get onto the property ladder whilst keeping your monthly costs down. At this time the lenders were less concerned about how the mortgage would be repaid. Some borrowers took out endowment polices in the hope of paying off the mortgage and having some extra funds, sadly this wasn’t always the case.
The criteria around interest only mortgages have since tightened – lenders are now look at repayment strategies, equity in property and many other factors.
What is an interest only remortgage?
Very simply swapping your interest only mortgage for another interest only mortgage. By going for an interest only deal you will still have to pay back the mortgage loan at the end of the mortgage term, as with any remortgage there will be costs involved. The alternatives to interest only mortgages are:
- Part & part – Part interest only & part repayment.
- Repayment – Ensuring your loan is paid on completion of your mortgage term.
Are there benefits to an interest only mortgage? If so, what are they?
The main benefit is the lower monthly payment because you are only paying the interest amount. Always remember that the mortgage balance is going to remain the same with an interest only mortgage. Good advice would always be to pay extra off the mortgage, any extra payments will be used as capital repayments (reducing your mortgage balance)
There is always some financial uncertainty with interest only mortgages such as:
- Property value at the end of the mortgage term.
- Investments – what their current value is.
- Housing market at the time.
Depending when properties were purchased some people may even end up in negative equity (owing more than the property is worth) this makes refinancing almost impossible without adding some of your own funds.
How is my interest only remortgage repaid? Which repayment vehicles are acceptable?
With all interest only mortgages your mortgage balance isn’t being reduced, you’re only paying the interest. Some people will rely on the property increasing in value and then selling the property to pay back the loan. No one truly knows what property prices will do in the future so this isn’t a guaranteed way of paying back the loan. Most lenders will want to have a minimum amount of equity in the property if this is your repayment strategy.
Below are some examples of repayment vehicles that lenders find acceptable:
- Sale of property or sale of another property
- Endowment policies
- Stocks & shares including ISA
- Pension schemes
- Unit trust
- Investment bonds
Each application will be judged on a case by case basis and will be down to other factors. Depending on what your repayment vehicle is, this will ultimately influence the length of the mortgage term each lender would be prepared to offer you.
Your mortgage expert will be able to give you the most up to date advice for your circumstances.
Can I get an interest only mortgage anywhere in the UK?
Every country will have slightly different criteria, in England & Wales most UK lenders will cover the vast majority of areas
In Scotland there are sometimes restrictions on certain postcodes, in this instance you may need to seek the help of a specialist lender and most certainly a mortgage expert will be needed.
Northern Ireland is very similar to Scotland, a number of UK lenders don’t lend in Northern Ireland, this means the criteria is stricter with the ones that do. Things to consider:
- Equity in property
- Property value
- Repayment strategy
- Credit history
Interest only remortgage rates and factors
The interest only remortgage rates you could be offered will vary depending on the lender. There are key factors that will be used:
- Loan to value
- Repayment vehicle
- Credit history
- Location of property
- Property construction type
The more equity you have in the property the more options generally will be available.
Can I switch from an interest only to a repayment mortgage?
Some lenders will allow you to switch from interest only to repayment directly with them, you will need to meet the affordability criteria and potentially re credit scored, another option is to remain on interest only and make over-payments. The best advice is to get a mortgage expert to search the “whole of the market” and find you the best repayment deal available.
Why remortgage to a new lender?
- Change of mortgage term
- Change of mortgage amount
- Release equity from the property
You can see a mortgage calculator by clicking here. this will give you an idea on potential monthly payments.
Can I have part interest only and part repayment?
Yes, this is a middle ground for some people, they are reducing the balance and keeping the monthly payments to a more affordable level. This will still leave a balance at the end of the mortgage term but not as much as interest only.
In simple terms the borrowers will pay some of the mortgage balance but not all of it, there will be a reduced portion of the loan to be repaid when the mortgage term ends.
Interest only in later life, what are my options?
How old you are can be a major factor in lenders deciding if, and how much they are willing to lend you. There are some lenders who have no maximum age and other who may cap the age between 75-85.
People’s lifestyle and life expectancy rates have increased, this has made later living lending a growing sector. The mortgage lenders are constantly coming up with new products and criteria for the later living now market.
Speak to an interest only remortgage advisor.
There are many lenders available ranging from high street to specialist lenders. Most people go to their own bank, get declined or can’t borrow what they need – just because one lender has declined you, don’t give up.
Our mortgage experts will look at each case before deciding which lender is right for you and your individual circumstances. All the mortgage brokers we work with are whole of market and offer unbiased advice. They will have access to all the specialist lenders to really enhance your chances of achieving the mortgage you need.
The expert brokers we work with have experience in dealing with all aspects of interest only remortgages and importantly using the whole of the market to access the very best deals available.