What is an interest only mortgage?
An interest only mortgage is a mortgage that only requires the payment of the mortgage’s interest. However, although you are only required to pay the monthly interest, the entire mortgage must be repaid by the end of the mortgage term.
It should be noted that the monthly repayments are often lower than other mortgages. This may be an attractive prospect, as it could ensure that you keep your monthly outgoings as low as possible. However, it is important to bear in mind that the total interest with an interest only mortgage is much higher than a standard mortgage. Also, the risk of negative equity is higher because the monthly interest payments go nowhere towards reducing the overall mortgage balance.
The Post Office have a number of mortgage deals, which include interest only mortgages. By using our Post Office interest only mortgage calculator at the top of the page, you could find the best interest only mortgage for you.
Why do people choose an interest only mortgage?
Getting an interest only mortgage could be appealing for a number of reasons. However, one of the most cited reasons for choosing an interest only mortgage is to keep monthly costs down.
Interest only mortgage when mortgage deal has come to an end: By switching mortgage provider and to an interest only mortgage, you could access lower interest rates and smaller monthly payments. If your initial mortgage deal is coming to an end, then you may want to review your options; the Post Office interest only mortgage calculator above could be a good start.
Release equity in your home: Remortgaging your property with an interest only mortgage could be an effective way to access a significant amount of money. People often remortgage to provide money for:
- Home improvements
- New Kitchen
- New Ensuite bathroom
- Consolidate other existing debts.
Through a Post Office interest only mortgage, you could access the money you need for your project.
How to get an interest only mortgage
Just as interest rates on mortgages vary, the criteria for accessing an interest only mortgage also depend on the lender. Therefore, there is no set of requirements that you will need to access an interest only mortgage, but there are some common requirements.
- A low loan to value (LTV): The majority of lenders are reluctant to lend more than 75% LTV. It is possible to access higher LTV through intermediaries such as professional brokers.
- A repayment vehicle strategy: Before granting an interest only mortgage, lenders will require you to provide details of your repayment strategy. A repayment strategy is how you intend to repay the loan at the end of the mortgage term. An example of a repayment 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.