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Comeback of the Interest Only Mortgage

In an interest-only mortgage, the repayment you make each month only consists of the interest and not the principle. So for the life of the loan, you pay just the interest, which may make your monthly payments lower, but you will need to repay what you’ve borrowed at the end of the term.


This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.


 

Even though these types of mortgages have fallen in popularity over the years, it seems they are making a bit of a comeback.

More and more lenders have started to offer them and in fact, Moneyfacts reports that interest-only mortgages have increased by 33% over the last year.

 


What is making interest-only mortgages popular?

According to financial experts, this change has been brought about due to equity releases, lifestyle changes, individual circumstances, and the fact that the rules regarding them from Financial Conduct Authority have relaxed recently. This means they are now an option for the masses, and are no longer limited to high-income earners or those with a lot of equity.

A major draw for these mortgages is the low monthly payment. However, this might be deceptive as in the long run, you will eventually have to pay back the capital that was initially borrowed.

Instead of consistently paying it down, you will need to repay it all in one go.

It can get tricky because while you may have entered into the mortgage with a plan for repayment, any number of things could happen during the life of the loan that could throw off your strategy.


The most important detail to consider if you are thinking about an interest-only mortgage is your plan to pay back the capital you borrowed once your loan expires.

There are a few different ways you can handle this situation:

  • Start an investment plan and contribute to it regularly for the sole purpose of repaying the capital
  • Overpay each month or make one-off lump sum payments (if allowed by your lender)
  • If you can handle the higher bill each month, switch to a repayment mortgage with enough time left in your loan to make a difference
  • Remortgage to secure a better rate, so you save more money overall

It’s crucial to consider all mortgage types and a variety of lenders before choosing your plan and provider. It can be a tough task to tackle on your own, which is why we’re happy to help you through the mortgage selection and application exercise.

We can advise on the best mortgage for your individual circumstances and guide you through the process.


Need help to secure a low-cost mortgage?
Mortgages | Buy to Let | Property | Mortgage Planning |

Dental & Medical Financial Services have been helping doctors and dentists with finding low-cost mortgages for your home and investment properties for over 25 years. Call Chris to discuss your options.

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