What is an interest only mortgage?
Interest only mortgages are those that only oblige you to pay the interest of the mortgage each month, and pay the entire capital of the mortgage at the end of the mortgage term. They have some of the lowest mortgage repayments on the market.
Although the size of the mortgage payments is often small, the interest rates on interest only mortgages are often high. Also, it should be noted that interest only mortgages expose you to a greater risk of negative equity. This is because the mortgage payments do not go towards repaying the capital of the mortgage.
You can access an interest only mortgage through Halifax. You can view all the available interest only mortgage deals through our Halifax. interest only mortgage calculator at the top of the page.
Why do people choose an interest only mortgage?
The majority of people are attracted to interest only mortgages because they allow them to drastically reduce their monthly mortgage payments.
Interest only mortgage when mortgage deal has come to an end: It is not uncommon for mortgage interest rates to climb up following the end of an introductory period. If your introductory period has expired on your mortgage, you could take out an interest only mortgage to avoid having to increase your monthly mortgage payments.
Release equity in your home: One way to access a large amount of finance is to release the equity in your property. If you have a large amount of equity in your property, you could remortgage your property and access the finance you need. Furthermore, if you remortgage with an interest only mortgage, then your monthly mortgage payments will shrink in size.
Releasing equity and remortgaging with an interest only mortgage could allow you to fund the following:
- Home improvements
- New Kitchen
- New Ensuite bathroom
- Consolidate other existing debts.
How to get an interest only mortgage
The criteria for an interest only mortgage will change from lender to lender; however, the majority of lenders will require:
- A repayment vehicle strategy: Lenders are reluctant to offer an interest only mortgage to those without a repayment vehicle strategy in place. A repayment vehicle strategy is the method you intend to use to repay the mortgage at the end of the term. An example of a repayment vehicle strategy is using the proceeds of the sale of your existing property.
- A low loan to value (LTV): Typically, high street lenders will only provide mortgages up to a certain percentage of the property’s value. Most lenders will not grant mortgages with a higher LTV than 75%. If you need an interest only mortgage with a higher LTV than 75%, then it is advisable to contact a professional broker.
If you are not sure whether now is the right time to remortgage or whether you can get an interest only deal, then speak to our independent mortgage broker team who will be able to offer impartial advice.