Interest-Only Mortgage

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Why Choose Us

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5-star reviews on Google
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years we have been as independent mortgage and protection brokers
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customer satisfaction for finding the best deals on the UK market
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Why Choose Us

0 %
5-star reviews on Google
£ 0
total donated to various charities
0
years we have been as independent mortgage and protection brokers
0 %
customer satisfaction for finding the best deals on the UK market

Interest-only mortgages are a distinctive mortgage product that offer unique advantages and potential pitfalls. Whether you’re new to the property market or a seasoned investor, it’s essential to understand how these loans work and how they might fit into your financial plans. In this article, we’ll walk you through the ins and outs of the interest-only mortgage, offering advice rooted in the vast experience we’ve gained as a trusted mortgage advisor in the UK.

What Our Clients Say About Us

5.0 Based on 143 reviews from review us onFlora R. ★★★★★ I worked with Richard (Protection Adviser) for a couple of days to sort out life and critical illness insurance. Absolutely brilliant, he found me and my husband the perfect policy. Very knowledgeable and easy to get on, he definetely makes things easy to understand. Thank you for the great service provided.Debbie P. ★★★★★ Cannot speak highly enough of Ascot Mortgages who have helped me on my journey over the last seven years. They have made the dream property possible twice. Thank you to Alison, Jardelle and all the team. I am very grateful.Areti D. ★★★★★ Absolutely thrilled with the exceptional service provided by Ascot Mortgages Ltd and especially by Natalia Barry! Even though our home purchase hasn't been completed yet, we couldn't wait to share our positive experience. From the moment we reached out, their professionalism and expertise shone through, making the daunting process of securing a mortgage a breeze.Not only did Natalia navigate the intricacies of the mortgage market with finesse, but they went above and beyond by suggesting other high-quality services, including solicitors and insurance providers. This comprehensive approach is making the entire home-buying journey seamless and stress-free.Natalia took the time to understand our unique needs and financial situation, ensuring that the options presented were tailored perfectly.Communication is prompt and clear throughout, leaving us feeling informed and confident at every stage. Natalia had our best interests at heart, going the extra mile to secure a fantastic mortgage deal.We cannot recommend Ascot Mortgages and Natalia highly enough. If you're in need of mortgage assistance, look no further. With their expertise and dedication to client satisfaction, you're in the best hands possible. A huge thank you to Natalia for making our home-buying experience a dream come true!Ashley Cox 1. ★★★★★ Would 100% recommend. Myself and my partner are currently going through the mortgage process as first time buyers. Natalia Barry has dealt with our application from day one. She has always been on hand to help, informative throughout and reliable when we have had questions. She has given us several options and broken them down into simple terms to help us. Natalia has truly been exceptional who deserves every bit of credit. We certainly got lucky having her as our first mortgage consultant.Dominik S. ★★★★★ Alison and the Ascot Team are excellent. I have used them for 5 years now and they deliver the most competitive mortgage deals fast. Just what I need. Thank you!Eric T. ★★★★★ We have dealt with Ascot Mortgages twice. Once for a mortgage about eleven years ago and recently for life insurance.In both cases we were treated with the utmost respect and professionalism.In the case of the life insurance application, we considered ourselves to be problem customers because of our age and numerous health issues.Richard Johnson, who managed this application couldn't have been more helpful.He worked in our best interest and was dedicated to providing an excellent service.We were kept up to date through all of the stages of the application and when our doctors were very slow in producing medical reports for the insurance company he persisted where others might have given up.The service we had from Richard was pleasant and professional throughout some difficult stages.My wife and I have no hesitation in recommending Ascot Mortgages.Zack R. ★★★★★ Having dealt with Ascot Mortgages and Alison for many years now I can say that you wont find a more professional, knowledgeable and efficient company to help with your mortgage. Alison is patient and makes the whole process seem easy. She has the answer to any question you have and seems to genuinely care. I can not recommend enough. I am sure I will be using Ascot Mortgages for years to come.Umair Z. ★★★★★ It has been a fantastic experience to work with both Phil and Jardelle at Ascot Mortgages to secure a mortgage product for my first home. Phil made the mortgage process smooth and easy. They are professionals and know what they are doing. Very pleased with the service and communication. would highly recommend them.Hello at NLP West M. ★★★★★ I needed a buy to let re-mortgage. Ascot were efficient from start to finish. I can recommend them completely especially because they can search the whole spectrum of mortgage lenders and meet the clients needs. never waiting for staff to get back and always kept me in the loop.Onohomen O. ★★★★★ ZHOU J. ★★★★★ It has been a brilliant experience to work with both Phil and Jardelle at Ascot Mortgages to secure a great mortgage product for our next home. Given how challenging the current market is, they have done a fantastic job to meet our needs with their expertise, professionalism and effectiveness. We would highly recommend their services to whom seeks help with their property purchase.Nicholas S. ★★★★★ Fantastic service. Ellie and Jardelle were always quick to reply to any queries and very helpful throughout the process. Highly recommend!Stacey S. ★★★★★ Jason was brilliant to work with! Always on top of the transaction! Would highly recommend 👍Scott ★★★★★ Although I've not bought anything yet, they (Jason in particular) have been super helpful in my search for the right mortgage deal, whilst also giving an honest opinion during these difficult times. Would highly recommend.Sandra I. ★★★★★ Fantastic from start to finish! Natalia and Jason found me the best rate for my remortgage and they were extremely efficient! Best service I’ve ever received from a brokerage company. Thanks so much.Virmantas N. ★★★★★ Amazing service and great communication. Ellie Morgan had quickly completed all requests and over delivered all expectations.Highly recommended for those who want to get the stuff done without any delays!David W. ★★★★★ I have used ascot for 3 renewals since they done helped me with my purchase which was complicated and will continue to use them going forward. Very fair prices and very helpful and knowledgeable even with just general information.Adam B. ★★★★★ Natalia made life very easy for us when remortgaging. Third time using ascot always a breezeTaff G. ★★★★★ Ascot Mortgages have been brilliant. Easy to work with and incredibly helpful. I am always happy to recommend them. Natalia and Jason have made the whole process much easier than I was expecting. Excellent service.Daryl L. ★★★★★ We've had a fantastic experience with Natalia Barry and Jason Jones at Ascot Mortgages for our property purchases and refinancing. Their expertise, coupled with genuine care and understanding of our needs, made the process smooth and stress-free.They were consistently communicative, keeping us informed at every step. Their assistance in consolidating our protection cover was invaluable, simplifying what could have been a complex process.What set them apart was their personal touch – always polite and ready to pick up the phone for a chat. This level of personal engagement is rare and much appreciated.In short, Natalia and Jason are not just skilled professionals but also truly dedicated to their clients. We highly recommend their services to anyone in need of mortgage advice.Sarah A. ★★★★★ I have used this firm for several years and they have always been super helpful and supportive, attentive and resolved issues in really useful ways. Shout out to Alison, Ellie and Jardelle (and the team!)Georgia W. ★★★★★ We worked with Ellie to secure our mortgage and protection, and she was a dream! Being a first time buyer, I was quite clueless about the process, and in a time where mortgage rates have been quite high, she worked right til the end to make sure we were getting our mortgage at the best possible rate and was always available to answer all questions I had. Can't recommend enough 🙂Richard D. ★★★★★ Laura S. ★★★★★ As a first time buyer, trying to navigate through potential mortgages was a very daunting thought. Ascot Mortgages were recommended to me and I've been extremely happy with the service provided. They have guided me through every step and I finally have a mortgage. Very pleased and would recommend.Lucy B. ★★★★★ Having Phil as my mortgage advisor was great from the very start! He is down to earth and speaking to him was always a pleasure. The kindness, compassion and support I have been given all the way through what can be a stressful process was immeasurable. Phil and Jardelle worked as a solid team and was able to make me feel at ease all the way through buying my first home. The team were always available and the communication between everyone was always clear and I felt safe in the hands of the company as a whole. Thank you for helping me buy my first home!js_loader

Written by:

Alison Gibson

Ascot Mortgage Expert

Last Updated:

04.09.2023

Written by:

Alison Gibson

Ascot Mortgage Expert

Last Updated:

04.09.2023

What is an interest only mortgage?

An interest-only mortgage is a type of loan where, for a set term, your monthly payments cover only the interest charged on the amount borrowed. The capital, or the amount you initially borrowed, is not paid off gradually over the mortgage term as it would be with a repayment mortgage. Instead, you repay the capital in full at the end of the term. 

This means the total amount you borrow won’t decrease throughout the term – if you borrow £150,000, you’ll still owe this at the end of the mortgage term. The strategy for paying back the capital should be a separate saving or investment plan. Interest-only mortgage rates vary, but as with any mortgage, it’s essential to compare your options before you apply.

The difference between interest-only and repayment mortgages

Repayment mortgages, also known as capital and interest mortgages, are the most common type of mortgage in the UK for residential purchases. With these, your monthly payments are split into two parts: one portion goes towards paying off the interest charged by the lender, and the rest goes towards paying off the capital loan. This means by the end of your term, assuming you’ve met all your payments, you’ll have paid off the loan in full and own the property outright.

In contrast, with an interest-only mortgage, your monthly payments go entirely towards the interest charge. The capital remains untouched, to be repaid at the end of the term. The key difference here is how you plan to repay the capital and what it means for your monthly outgoings.

Mortgage Repayment Calculator

What are the advantages of an interest-only mortgage?

More affordable monthly payments

One primary advantage of an interest-only mortgage is that your monthly payments will be lower compared to a repayment mortgage because you’re only paying the interest charged by the bank or lender. This can free up money for other expenses or investments.

Valuable option for buy-to-let owners

For those investing in buy-to-let properties, interest-only mortgages can be a valuable option. The lower monthly payments can help maintain positive cash flow, while the property’s capital value may increase over the term, providing a means to repay the loan.

You can budget and invest your savings

With an interest-only mortgage, you can potentially budget and invest your savings more effectively. Since your monthly payments are lower, you may choose to invest the difference to generate a return that could contribute towards repaying the capital.

Alison Gibson

Ascot Mortgage Expert

Remortgage

Remortgaging is applied when you keep

living in your present property while applying for another mortgage deal with a new lender. Before finding out how to remortgage and get the best offers from experts like Ascot Mortgages, you have to check meeting what parameters of the deal that can help you succeed the most. The range of background factors varies a lot — from the recently changed loan-to-value ratio or your existing agreement coming to an end.

Whether you are trying to get a more beneficial deal or searching for funding to improve your home conditions, remortgaging is one of the most advantageous scenarios to consider.

What are the disadvantages of an interest-only mortgage?

Can be more expensive overall

While monthly payments on an interest-only mortgage are lower, in the long run, these can be more expensive. As you’re not reducing the capital, you’ll be charged interest on the full loan amount throughout the term, compared to a repayment mortgage where the interest charge decreases over time.

Banks and lenders view it as 'high risk'

Since the capital isn’t being gradually repaid, banks and lenders see interest-only mortgages as high-risk. As a result, they may apply stricter lending criteria, including higher deposits, lower loan-to-value ratios, and proof of a credible repayment plan for the capital.

Risk of shortfalls

There’s also a risk of shortfalls if your investment or saving plan doesn’t generate enough return to repay the capital at the end of the term. If you can’t repay the loan, your property could be at risk of repossession.

What to do if you have an interest-only mortgage

If you have an interest-only mortgage, it’s vital to have a solid plan in place to repay the capital. Regularly review and adjust your plan as needed. If you’re concerned about repaying the capital, consider switching to a repayment mortgage, making overpayments, or extending your mortgage term to give yourself more time. 


However, each situation is unique, and it’s important to get professional advice before making any decisions. Here at Ascot Mortgages, we’re more than happy to delve deeper into your personal circumstances and help you find the best option for your financial future. With years of experience advising on all types of mortgages, we’re well-equipped to guide you through the intricacies of interest-only mortgages and help you make the right choice.

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FAQ

With an interest-only mortgage, your monthly payments only cover the interest on your loan, and the amount you borrowed must be repaid in full at the end of the term. The repayment of the capital typically comes from the proceeds of an investment product or savings plan that you set up at the outset of the mortgage. This could be an Individual Savings Account (ISA), endowment policy, pension, or other investment. The choice of repayment plan is down to your financial circumstances, risk appetite, and what you feel comfortable with.

If you’re unable to repay the capital at the end of the mortgage term, you should contact your lender as soon as possible. They may allow you to extend the term of the mortgage or switch to a repayment mortgage, although this will increase your monthly payments. If no resolution can be found, you may have to sell the property to repay the loan. It’s crucial to have a realistic repayment plan in place when you take out an interest-only mortgage to avoid this scenario.

It might be possible to increase the term of your interest-only mortgage, but this is at the discretion of the lender and subject to their criteria at the time. Increasing the term of the mortgage will reduce your monthly payments but increase the total amount of interest you pay over the term. You may also need to show that you have a suitable plan in place to repay the capital at the end of the extended term.

Yes, some lenders offer part-and-part mortgages, where part of your mortgage is interest-only and part is on a repayment basis. This means you make monthly payments to cover the interest on the interest-only portion and pay off some of the capital on the repayment portion. At the end of the term, you’ll need to repay the outstanding capital on the interest-only portion from your savings or investment plan. This can be a good option if you can afford to repay some of the capital but want lower monthly payments than a full repayment mortgage. As with all mortgages, the availability of this type of mortgage will depend on the lender’s criteria and your personal circumstances.

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