What is an interest only mortgage?
Where standard mortgage monthly payments are made up of both the capital and the interest of the mortgage, interest only mortgage monthly payments are only the interest of the mortgage. As a result, the entire capital in an interest only mortgage must be paid at the end of the term.
Monthly interest only mortgage payments are generally low, which can help you minimise your monthly outgoings.
Although the amount you pay each month is lower than a standard mortgage, due to the higher interest rates, you may end up paying more overall.
Before taking out an interest only mortgage, you should be aware that interest only mortgages expose you to a higher risk of falling into negative equity. This is because your monthly payments do not reduce the overall mortgage balance.
You can access an interest only mortgage through Skipton. You can view all the available interest only mortgage deals through our Skipton interest only mortgage calculator at the top of the page.
Why do people choose an interest only mortgage?
Interest only mortgages are usually seen as an appealing option because they allow you to reduce the size of your monthly mortgage payments.
Interest only mortgage when mortgage deal has come to an end: Typically, after your initial mortgage deal expires, the interest of your mortgage will revert back to the lender’s standard variable rate (SVR). The lender’s SVR is usually much higher than the introductory rate. By changing to an interest only mortgage, you could avoid feeling the effects of reverting to the lender’s SVR.
Release equity in your home: If you are looking to start a home project, you may need some finance. Releasing equity in your home by remortgaging could help you access thousands of pounds. By remortgaging with an interest only mortgage, depending on the equity in your property, you could get a substantial amount of funding and decrease your monthly mortgage 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 low loan to value (LTV): Generally, lenders will only provide mortgages up to a certain percentage of the property’s value. It is not uncommon for lenders to only provide up to 75% LTV. Note that it is possible to access higher LTV mortgages through professional brokers.
- A repayment vehicle strategy: Lenders will only provide an interest only mortgage if there is a clear repayment vehicle strategy in place. A repayment vehicle strategy is the method you intend to use to repay the loan. 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.