What is an interest only mortgage?
Interest only mortgages are mortgage that monthly payments are made up of just the interest on the mortgage; the entire capital of the mortgage is repaid at the end of the mortgage term.
Interest only mortgages have some of the lowest monthly mortgage repayments on the market, which can help you significantly reduce your monthly outgoings.
It should be noted that the size of their monthly mortgage repayments are often smaller than standard mortgages, but the interest is often higher.
In addition, you will be more likely to fall into negative equity with an interest only mortgage because the monthly payments do not reduce the overall mortgage balance.
You can access an interest only mortgage through Royal Bank Of Scotland. You can view all the available interest only mortgage deals through our Royal Bank Of Scotland interest only mortgage calculator at the top of the page.
Why do people choose an interest only mortgage?
The appeal of an interest only mortgage could be because they may result in much lower monthly mortgage payments.
Interest only mortgage when mortgage deal has come to an end: It is commonplace for the interest of a mortgage to increase after the introductory rate expires. If you take out an interest only mortgage after the end of your initial mortgage deal, then you may be able to avoid paying larger monthly interest payments.
Release equity in your home: Depending on the amount of equity in your property, you could access a substantial amount of finance through remortgaging to an interest only mortgage and lower your monthly payments. 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
Not every interest only mortgage lender will have the same criteria for accessing finance. But it is likely that they will require the following:
- A repayment vehicle strategy: Lenders will only grant interest only mortgages to those with a repayment vehicle strategy in place. A repayment vehicle strategy is how you intend 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): The majority of lenders will only provide mortgages up to a certain percentage of the property’s value. The few lenders that are prepared to provide a higher LTV mortgage often only work through intermediaries such as professional brokers.
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.