What is an interest only mortgage?
An interest only mortgage is a mortgage taken out where you only pay the interest for borrowing the money and you do not pay back any capital. For example; if you borrow £150,000 over 15 years you will only make monthly payments covering the interest, but at the end of the 15 years you will still owe the capital of £150,000.
Can I extend this mortgage term?
You need to discuss this with your lender directly for a decision. The lender may agree if you have a clear strategy and time-frame for paying back the capital. If you feel that you may need to extend the term of the interest-only mortgage you should speak to your lender as soon as possible. You should also speak to a mortgage broker who can give you advice in this area also.
Can I get an interest-only mortgage?
There are lenders in the market who offer interest-only mortgages, however there is certain criteria that you need to satisfy to qualify. For example some lenders may require you to be earning over a certain amount each year, additionally you need to have a clear repayment strategy in place which is a reasonable and feasible option.
What happens when this mortgage ends?
At this point your lender will expect payment in full of the mortgage balance, that you have outstanding. If you feel that you may be unable to make this payment, you should speak to your lender as soon as possible and try and come to an arrangement. Alternatively you should speak to a mortgage broker who can explore other mortgage options that maybe available to you.
Is interest-only mortgage a good idea?
The majority of mortgages that are taken out are on a repayment basis, so you know that the capital will be completely paid off by the end of the mortgage term, however in certain circumstances an interest only mortgage maybe suitable to individuals. It is extremely important that you understand what an interest-only mortgage is and that you have a clear feasible strategy of paying back the capital that you have borrowed. Seeking advice in this area is important from a qualified mortgage adviser.
Are Buy to Let mortgages interest-only or repayment?
Lenders do offer buy to let mortgages on either an interest only or repayment basis. The main determining factor between the two repayment strategies are; if the rental income covers the mortgage payment with a suitable surplus. Additionally some landlords prefer to have the mortgage on an interest only basis as the monthly payments are low, so in the event of not having tenants in place, the mortgage payment is less demanding. You should seek advice from a mortgage adviser in relation to the pros and cons with these repayment methods.
Can you switch from an Interest-Only Mortgage to a Repayment mortgage?
Firstly you should speak to you existing mortgage provider and see if this is an option and secondly speak to a mortgage broker who can explore the whole mortgage market and give you advice around the most suitable mortgages available based upon your circumstances. If you have bad credit registered and are unable to change to a repayment mortgage you could look at making regular overpayments and reduce the capital balance that way.
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DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.