A mortgage is usually the biggest expense anyone can take on. And during times when your finances are being squeezed, managing and sticking to your budget might feel impossible. But all hope is not lost! It is possible to save money on your monthly mortgage payment. Your lender can work with you to find an option that helps, including switching to interest only. Find out more about how this can help you save.
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.
Interest-only mortgages can help you save
If you can’t currently keep up with your mortgage payments, worry that soon you might not be able to, or are simply just looking to save money where you can during this cost-of-living crisis, consider an interest-only mortgage. Keep in mind that interest-only mortgages do come with specific payback terms, so it might just be a temporary move to save money in the present.
Keep in mind that a temporary switch to paying interest only will help to reduce your monthly payments for a short time. But if you are only paying the interest for a short period, your monthly payments will be higher than before when you resume full repayment.
Interest-only mortgages are available to borrowers who have a proven plan of how they will repay the total amount owed at the end of the mortgage. You can’t rely on a potential future windfall (like an inheritance or bonus), nor can you use trends/potential home prices to guarantee that you can pay back the money at the end of the term. If you weren’t planning to sell your home at the end of the mortgage term, but have no other recourse, you might be forced to sell in order to repay your debt.
The comeback of interest-only mortgages
Before the 2008 financial crisis, interest-only mortgages were quite popular. However, in the run-up to the crisis, many people were taking out interest-only mortgages with no feasible way of paying them back. It’s highly likely that the affordability tests introduced after the crash were because of this issue.
However, interest-only mortgages have recently become popular again, for borrowers at least. It’s no wonder since switching could save you hundreds of pounds per month. But many lenders are very discerning when it comes to granting interest-only mortgages for homeowners, so just how many people can benefit from switching can’t be determined.
Who can secure an interest-only mortgage?
Interest-only mortgages can be a lifesaver for the right kind of borrower. They are ideal for someone with a good financial history of repayments and with plenty of equity in their home. Interest-only mortgages are great for someone who just needs a short reprieve but will be able to get back to repayments as soon as they can.
Lenders will require evidence of a repayment plan and often won’t grant interest-only mortgages to those without a minimum amount of equity in their home. The less money you need to borrow, the more likely you are to be granted a switch. These criteria alone will disqualify some borrowers. But just because it might be difficult to secure, doesn’t mean it’s not worth it for those who are successful.
Is it the right move for you?
For help determining whether or not you’d be a great candidate for an interest-only mortgage, be sure to get in touch with the experts at Dental & Medical Financial Services. We can help determine what’s right for you and help you through the process. Don’t wait, contact us today.