Interest Only Mortgages

Interest Only Mortgages

Use our Quick interest only calculator to see what your monthly mortgage payments could be !

What is an interest only mortgage?

What is an interest-only mortgage? and how do interest only mortgages work? which mortgage lenders accept interest only deal?

Interest only mortgages are a type of home loan where borrowers have the option to pay only the interest on the loan for a certain period of time, typically between five to ten years. During this period, the borrower’s monthly payments consist solely of the interest accrued on the loan. The principal amount borrowed remains unchanged. After the interest-only period ends, the borrower must begin making payments that include both the principal and interest. This type of mortgage can be appealing to certain borrowers, but it also comes with its own set of pros and cons. It is important to understand these before making a decision.

Interested in learning about interest-only mortgages?

Basically, with this type of mortgage, your monthly payments are only covering the interest charges on the loan, which means you’ll have much lower payments overall.

example of an interest only mortgage: On a £750,000 property with an interest only mortgage of  £200,000 at 5% Mortgage rate = £200,000 x 5% = £10,000/ 12 months  = £833.33 pcm  

Just keep in mind that at the end of the term, you’ll still owe the Initial amount (  £200,000 ), that you borrowed, so you’ll need to be prepared to pay that back all at once. That could be through moving and or downsizing to a smaller property or perhaps you move it across to an Equity Release or lifetime mortgage?

Although they’re not the most common type of mortgage, an interest-only mortgage can be a great choice for some people. Let me know if you have any questions!

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Why are Interest Only mortgages hard to get?

Interest-only lending was common pre-2008 financial crisis. However lenders post 2008  are now more careful and dont want to be left with having to evict someone who cant afford to repay the balance at the end of their mortgage term  eg 25 year term.

Only a handful of lenders now offer them, and they have strict criteria such as a suitable equity or deposit and approved repayment plan for collateral purposes. Typically a lender would want you to have at least £300,000 in equity,  that way it is argued that you could sell the property and downsize and move to a smaller suitable property or perhaps one in a different area  eg  outside of London.

Interest-only mortgages for Landlords on buy-to-let properties, are still common due to tax rules. 

It’s important to note that if the borrowed amount remains unpaid after the term ends, borrowers need to either obtain a new mortgage or sell the property to cover the outstanding balance.

What are the advantanges of Interest Only Mortgages

Interest only mortgage can have many benefits:

  • Lower Monthly payments: As you are only paying the interest, your motnhly payments will be lower.
  • Provide a ‘stop gap’ to equity release: Perhaps you wanted an equity release mortgage but those lenders couldnt lend nough – you could use an interest only mortgage for a further 5 or 10 years etc until your age and property value matched what you could get on a  lifetime mortgage.


One of the main advantages of an interest only mortgage is the lower monthly payment during the interest-only period. Since the borrower is only paying the interest, the monthly payment is significantly lower compared to a traditional mortgage. This can be beneficial for borrowers who have other financial commitments or who are looking to invest their money elsewhere.

Another advantage of an interest only mortgage is the potential for increased cash flow. With lower monthly payments, borrowers may have more disposable income to use for other purposes. This can be particularly useful for individuals who are self-employed or have irregular income streams.

Furthermore, interest only mortgages can provide flexibility for borrowers. During the interest-only period, borrowers have the option to make additional principal payments if they choose to do so. This allows them to pay down the loan faster and potentially save on interest charges.

What are the disadvantanges of Interest Only Mortgages

One of the main disadvantages of interest only mortgages is the fact that borrowers are not building equity in their homes during the interest-only period. Since they are not paying down the principal, the value of their home does not increase. This can be problematic if the housing market experiences a downturn, as borrowers may find themselves owing more on their mortgage than their home is worth.

Another potential drawback of interest only mortgages is the risk of payment shock. Once the interest-only period ends, borrowers are required to start making payments that include both the principal and interest. This can result in a significant increase in monthly payments, which some borrowers may struggle to afford. It is important for borrowers to carefully consider their financial situation and future income prospects before choosing an interest only mortgage.

Additionally, interest only mortgages typically have higher deals compared to traditional mortgages. This can result in higher overall interest costs over the life of the loan. Borrowers should take this into account when deciding if an interest only mortgage is the right option for them.

What happens if I can't repay my Interest only deal?

If you’re finding it difficult to pay back your mortgage, don’t panic  and ALWAYS speak to your lender – ( you can also give us a call !! ).

The good news is that your mortgage lender will be understanding of the situation. By simply reaching out to them and letting them know your situation, you could work together to come up with a more manageable action or payment plan.

If you’re currently on a high-rate mortgage and looking for a better deal, consider remortgaging. This could help you save money on deals and allow you to have a more comfortable budget.

If all else fails, remember that selling your property is always an option. It may not be the most attractive choice, but if your property has increased in value, selling could help cover the cost of your debt and even leave you with some cash to start fresh in your new home. Just remember, we’re here to help and support you throughout this process.

Understanding the risks of interest only mortgages

Before committing to an interest only mortgage, it is crucial to fully understand the risks involved. One of the biggest risks is that the value of the property may not increase as expected. If the housing market experiences a downturn, borrowers may find themselves in a negative equity situation where they owe more on their mortgage than their home is worth. This can make it difficult to refinance or sell the property.

Another risk to consider is the potential for higher future deals. If deals rise after the interest-only period ends, borrowers may face significantly higher monthly payments. It is important to have a plan in place to handle potential increases in deals.

Furthermore, borrowers should be aware that an interest only mortgage may not be suitable for everyone. It is important to carefully assess your financial situation, future income prospects, and long-term goals before deciding if an interest only mortgage is the right choice.

How to determine if an interest only mortgage is right for you

When considering an interest only mortgage, there are several factors to take into account. First, assess your financial situation and determine if you can comfortably afford the monthly payments once the interest-only period ends. Consider your income stability, potential future expenses, and any other financial commitments you have.

Additionally, evaluate your long-term goals and plans for the property. If you plan to sell or refinance the property before the interest-only period ends, an interest only mortgage may be a viable option. However, if you plan to stay in the property for an extended period of time, it is important to consider the potential risks and drawbacks of this type of mortgage.

Lastly, consult with a mortgage professional who can provide personalized advice based on your individual circumstances. They can help you evaluate your options, understand the potential risks, and determine if an interest only mortgage aligns with your financial goals

Factors to consider when choosing the most suitable interest only mortgage

When selecting an interest only mortgage, there are several factors to consider. First and foremost, compare deals from different lenders to ensure you are getting the most suitable deal. A lower interest rate can result in significant savings over the life of the loan.

Additionally, review the terms and conditions of the mortgage carefully. Understand the length of the interest-only period, the interest rate adjustment frequency, and any prepayment penalties or fees. It is important to have a clear understanding of all the terms before committing to a mortgage.

Furthermore, consider the reputation and reliability of the lender. Look for lenders with a strong track record of customer satisfaction and financial stability. This will provide peace of mind knowing that you are working with a reputable institution.

Using an interest only mortgage calculator

So an Interest Only mortgages calculator can be helpful to use. an interest only mortgage calculator. This tool allows you to input the loan amount, interest rate, and length of the interest-only period to calculate your monthly payments. It can also provide an estimate of how your payments will increase once the interest-only period ends. This can help you evaluate if an interest only mortgage is financially feasible for you.

Interest only mortgages in the UK

Interest only mortgages are available in the UK, but they have become less common in recent years. The Financial Conduct Authority (FCA) has implemented stricter regulations around this type of mortgage to prevent irresponsible lending. Lenders now require borrowers to have a credible repayment plan in place to ensure they can afford the mortgage once the interest-only period ends.

If you are considering an interest only mortgage in the UK, it is important to work with a reputable lender who can guide you through the application process and help you meet the necessary requirements. Be prepared to provide detailed information about your income, assets, and repayment strategy to demonstrate your ability to repay the loan.

Interest only mortgage rates in retirement

Interest only mortgages can be a topic of interest for those approaching retirement or already retired. Some individuals may choose an interest only mortgage to free up cash flow during their retirement years. However, this decision should be made with caution.

It is important to carefully consider your financial situation and long-term goals when considering an interest only mortgage in retirement. Evaluate your income sources, potential future expenses, and any plans for downsizing or selling the property. Additionally, consult with a financial advisor who specializes in retirement planning to ensure you are making a sound financial decision.

Retirement Interest-Only Mortgages

Remortgaging or opting for a retirement interest-only mortgage are other options. With remortgaging, you borrow against the value of your home with the understanding that the loan will be repaid while you’re still alive. A retirement interest-only mortgage is similar to a lifetime mortgage but with the key difference that you make regular interest payments, so the amount you owe does not increase

If you have other valuable assets, such as a second car, jewelry, or collectibles, selling these can provide a lump sum of money without impacting your home ownership .

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