What is an interest only mortgage?
Unlike repayment mortgages, which require both the capital and the interest repayments each month, interest only mortgages only require you to cover the interest of your mortgage. However, just as any mortgage, interest only mortgages must be fully repaid at the end of the term.
The advantage of an interest only mortgage is that the monthly repayments are often some of the lowest on the market. This could be appealing if you want to keep your monthly outgoings to a minimum.
Although the monthly payments are generally smaller, the interest charged over the full mortgage is typically higher than other mortgages. Furthermore, there is a greater risk of negative equity with an interest only mortgage. This is because the monthly payments do not reduce the overall mortgage balance.
HSBC have a number of mortgage deals, which include interest only mortgages. To find the best deal for you, use our HSBC interest only mortgage calculator at the top of the page.
Why do people choose an interest only mortgage?
Choosing an interest only mortgage has its perks, and one of the main advantages of an interest only mortgage is that it can keep your monthly outgoings low.
Interest only mortgage when mortgage deal has come to an end: If you want potentially competitive interest rates and smaller monthly payments, then you should consider an interest only mortgage. The HSBC calculator at the top of the page allows you to see the best interest only mortgages available, which may be a good place to start if your mortgage deal has come to an end.
Release equity in your home: It is possible to remortgage your property with an interest only mortgage as a way to access property finance. If you have equity in your property, you could remortgage with an interest only mortgage to fund any of the following projects:
- Home improvements
- New Kitchen
- New Ensuite bathroom
- Consolidate other existing debts.
Through an HSBC interest only mortgage, you could release a potentially large amount of equity to finance your project.
How to get an interest only mortgage
The criteria for an interest only mortgage can change from lender to lender; there is no standard application process of set of requirements. However, lenders will usually need the following:
- A low loan to value (LTV): Typically, lenders will only provide a mortgage with a low LTV. It is not uncommon for a lender to refuse to provide a mortgage for more than 75% LTV. It should be noted that it is possible to get a higher LTV, but you will likely need the assistance of a professional broker.
- A repayment vehicle strategy: You will need to provide details of your repayment vehicle strategy (the way you intend to repay the mortgage by the end of the term). An example of a repayment vehicle strategy is using the proceeds of the sale of your existing property.
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.
Independent Mortgage Advice
Remortgaging is particularly popular at the moment as interest rates are low.
Whether it will be a good idea for you to remortgage depends on a number of factors, including your goals and your personal circumstances.
However, in general, if interest rates are lower than you are currently paying on your mortgage, it may be a good time to remortgage.
If interest rate are higher than you are currently paying, it may be better to look at other options, such as a second mortgage or a personal loan (if you aim is to borrow more).
If you are not sure whether now is the right time to remortgage, it is a good idea to speak to an independent mortgage broker who will be able to offer impartial advice on HSBC & alternative lender options.