Interest-Only Mortgage

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Why Choose Us

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

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 122 reviews from review us onLucy 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!Flora 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.Matthew R. ★★★★★ I've dealt with Phil at Ascot Mortgages for a while now and Phil always comes back back to me with the right plan.Keep the good work up!rafal W. ★★★★★ I would thoroughly recommend Phil Greenwood at Ascot Mortgages ltd to anyone looking to seek advice on purchasing a home.Phil was absolutely fantastic. He made the process very smooth and easy and was always there to answer any questions I had.Shahid L. ★★★★★ This company has been truly amazing in constantly giving me the support and help i need for my mortgage and for their continuous work ethic guiding customers like myself and educating them into making the best possible decisions. My special mention goes to Phil Greenwood who deserves every single credit for his brilliant work and communication skills. The more I got to work with Phil, the more he gained my respect as he is a hugely likeable man and possibly the best mortgage advisor yet. Even after I finished my time with Ascot Mortgages, I will never lose my trust in the company and I hope they exceed their business and gain even more success and popularity.Best wishes,Shahid Latif and familyPretty L. ★★★★★ Phil helped me renew my mortgage. He was great at keeping me updated with any rate changes and secured a lower rate than at the time my mortgage went through. Thank you Ascot for your supportNikki E. ★★★★★ Huge thanks to Richard Johnson for sorting out all of my insurance policies! I had accumulated a variety of life cover and various other policies over the years that all needed a good review and refresh. Richard was extremely patient and helped me to remove the duplication and choose the best cover to suit our current needs. I have used Ascot Mortgages for over 12 years and have met several members of the team, always finding the right help and support to work through what can be a complicated and stressful time. Thanks again, Richard!Aamir R. ★★★★★ As first time buyers we had very little understanding of how to go about applying for a mortgage. Phil was so helpful in cutting through all of the formalities and helping us to decide which mortgage would be best for us also ensured we collated all the details needed and kept us up to date on progress. The process of finding the right house was very stressful but the process of choosing and applying for the mortgage and life cover has been so straight forward that, at times, we were worried it was all a bit too smooth! Thank you for guiding us through this so professionally and with real understanding and personality.Andrew T. ★★★★★ Working with Richard at Ascot has been a great experience. He listened to us and was very professional throughout. This was our first experience with Richard but we've been using Ascot now for 6-7 years. Thank you all at AscotAngie B. ★★★★★ Always give a great service and find you a mortgage in a timely fashion.Alison is awesomeAndrew M. ★★★★★ We have used Ascot Mortgages for over 5 years now and have had excellent service throughout, primarily with Alison and Kevin. Our latest dealings have been with Richard Johnson who although new to us (and to Ascot I believe) has once again provided the 5 star level of service we have come to expect. His product knowledge is excellent offering a range of options supported with consistent communication and updates, always available on the phone or on email every step of the way.Ali H ★★★★★ Excellent service, a big thanks to Natalia Barry for her excellent support with my buy to let mortgage application, Natalia was professional, transparent, and kept me informed during all the process, and thanks to Jason jones for his assistance and support.david R. ★★★★★ I have dealt with Ascot for many years now and will always go back, recently had all my insurances re done by Richard Johnston at the firm, excellent service, communication and swift actions by Richard. Great deals on all three insurances and would recommend anybody to go to Richard for help. Thanks Richard 👍Eve Alexandra C. ★★★★★ We used Ascot Mortgages to purchase a home as first time buyers, Ellie assisted us with this and went above and beyond to ensure everything went smoothly, all questions were answered, and any queries were solved.As first time buyers, myself and my partner were quite nervous and clueless as to what to expect when getting a mortgage and what not, and Ellie made this so simple and explained everything in a way that we thoroughly understood what was happening with our house buying journey, without it being pure jargon.I can't thank Ellie enough, she truly has been a star during the whole experience and is an asset to Ascot Mortgages.She is someone who I would definitely recommend to friends and family if the opportunity arises, and has made this whole experience a very stress free and exciting one!Thank you for everything Ellie!Emma W. ★★★★★ Alison helped me to get the right mortgage for my current situation and was very supportivehelen L. ★★★★★ Phil Greenwood dealt with my recent remortgage, he made sure I had the best product to fit our HMO criteria. Then chased solicitors for me and made sure I completed around the date I wanted to avoid my ridiculous rate I was about to be switched to. Thanks Phil, great job! Ready for my next mortgage now so I will be coming back 🙂Mark C ★★★★★ Excellent service from an excellent representative. Very professional and helpful company. Thank you for all your helpDamian L. ★★★★★ I recently purchased a buy-to-let from Auction and Ascot Mortgages, in tandem with Ascot Bridging Finance, supported me through the whole process. Once the property purchase via a bridging loan was complete, Ascot Mortgages worked out the best options for me, despite the Banks rising interest rates and spiralling UK inflation and managed to secure me a competitive mortgage rate for that property. I wouldn't hesitate in going back to Ascot Mortgages in the future and look forward to working with them again in the near future. Thank you for everything you've doneJuliet B. ★★★★★ Thank you to Alison for helping us and sorting out our mortgage. Swift, reliable and very helpful. Very much appreciated. God bless you abundantly 👍👌🤝gareth P. ★★★★★ Been with Alison and team for more than 25 years. Needless to say, very happy...Jo T. ★★★★★ We have been using Ascot Mortgages for the last few years and they have done 11 buy to let products for us.We have found Alison, Phil, Jason, Jardelle and the team to be excellent at finding the best product for us and to work at pace when we are buying from auction and have a deadline to meet.Communication is very good and nothing is too much troubleBen H. ★★★★★ I can't recommend Ascot Mortgages highly enough.We have used them for all of our Mortgages . They are professional and friendly and have walked us through all our options, they always have the time to talk to you and go the extra mile to get you the best deal. It wont be long till I'm calling on their services again, I wouldn't go anywhere else.If you want a mortgage, there's only one place to go!Dog J. ★★★★★ Ascot went the extra mile to help me acquire a mortgage. With the help of Jason and Ellie I was able to get a competitive rate after 3 other firms had told me they couldn't help me. Great levels of communication throughout, I would highly recommend!Ursula B. ★★★★★ Alison was very friendly and professional in securing the right bridging for us and at a very competative price. This ensured that we were able to place an immediate offer and not miss out on our forever home. Later her help and support in finally getting our completion over the line was nothing short of a miracle. I would strongly recommend both Alison and the team at Ascot Mortgages.primrose C. ★★★★★ ALISON IS BY FAR THE BEST IN THE GAME. ALL WE CAN SAY IS THANK YOU SO MUCH. They are passionate on customer service, even in my frustrated time Alison, Jadelle, Ellie I could name them all. May the good LORD BLESS YOU.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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