Interest Only Mortgages

 

Many consumers choose a capital repayment mortgage, which means that as well as paying off the interest every month, a portion of the capital (the loan/ amount you borrowed) is also being paid off. This means that by the end of the mortgage term, the property would be owned outright. The longer the mortgage term, the more interest you will pay back overall. 

In the early years of your mortgage term, most of your monthly payments go towards the interest with a small portion towards your capital repayment. As you progress through the mortgage term and your capital loan decreases, the overall interest reduces and you start to pay off more capital each month. 

 

With a fixed rate mortgage, the interest rate stays the same for a set period, most commonly two, three or five years. This makes it easier to budget each month as your payments will remain the same until the mortgage product comes to an end. It is important to note that a fixed rate product is an agreement for a specified time period and to exit such a deal may incur an Early Repayment Charge (ERC). 

 

A variable rate mortgage is the opposite of a fixed-rate. The two main types of variable rate mortgages are Standard Variable Rate (SVR) and Tracker Rate. The SVR is determined by the lender and this can change from month to month meaning your monthly payments could increase or decrease. This can be influenced by the Bank of England base rate but remains at the lender’s discretion. A tracker rate follows the movement of another interest rate, usually the Bank of England’s base rate and is usually set slightly higher. If the base rate goes down, the tracker rate goes down, which in turn means that mortgage payments go down. The opposite is also true and it’s worth noting that should the interest rate rise drastically, monthly payments will rise and may even become unaffordable. 

 

This all depends on your individual, personal circumstances and your overall attitude to risk. Getting quality advice from an experienced mortgage broker is highly recommended (CLICK HERE to get in touch). Nobody has a crystal ball and it’s hard to predict what will happen in the future. A mortgage is a serious, long-term commitment and its essential to consider your financial future with care. 

 

Different lenders have different policies for setting interest rates which is why it’s useful to speak to a whole of market adviser when seeking mortgage advice. The set interest rate is based on a range of factors including the Bank of England Base Rate, your credit history and current credit score and the risk to the lender in terms of loaning you the money for your mortgage. 

 

Competition between lenders in the mortgage market will affect the products and deals on offer. Seeking professional advice from an experienced mortgage broker is highly recommended. A mortgage broker will be able to discuss the current best mortgage rates for your personal circumstances. 

 

• speak to a whole of market mortgage broker 

• work on your credit record/ ensure you have a good credit score 

• build up your deposit 

 

Yes, although the lending criteria is very specific and more stringent compared to residential mortgages. They are not as readily available as they once were. Speak to one of our experienced mortgage brokers to find out more. 

 

Lenders allow interest-only mortgages for buy to let properties. Benefits for landlords can be that the monthly repayments can be significantly less than with a repayment mortgage and it may be beneficial in helping you to keep your overheads lower. 

 

The amount you can borrow will depend on a number of factors including the purpose of the mortgage. Speak to one of our experienced mortgage advisers to find out more. 

 

The services our mortgage brokers (also known as a mortgage adviser) although not essential, can be highly valuable as their advice and knowledge can be invaluable both during the mortgage application process and for ensuring a good long term financial outcome. 

 

A mortgage broker will discuss how much you can borrow and what you can afford, discuss all the documents you need to evidence such as your income, overcoming obstacles such as bad credit/ improving your credit score, helping you understand any relevant schemes such as help to buy, provide you with an agreement in principle (AIP) and supporting you through the entire mortgage application process smoothly. Protection and life insurance advice will be provided as part of the process.