Comparable interest rates
From a cash flow perspective, an interest-only mortgage is an appealing option. However, since interest is charged on the original loan value for the lifetime of the mortgage, it is important to understand that the overall interest paid will be higher. A repayment mortgage attracts interest at a reducing rate as the capital owed is brought down. Finding the best deal can be confusing with any number of mortgage offers, benefits and contrasting rates available at any one time. If you are unsure of which mortgage product is best for you, or whether to choose between a repayment or interest-only mortgage, give the team at business loan broker a call, and we will help you to make the most informed decision! As an example, consider that you are purchasing a property at £232,000 and have a 25% deposit payment available. This leaves a mortgage required of £174,000 and assuming a 25-year loan basis.
- At 3% interest, the monthly payment on an interest-only mortgage will be £435 and the total interest paid over 25 years £130,500. The monthly repayment on a repayment mortgage will be £825 and the total interest paid over 25 years £73,538.
- At 4% interest, the monthly payment on an interest-only mortgage will be £580 and the total interest paid over 25 years £174,000. The monthly repayment on a repayment mortgage will be £918 and the total interest paid over 25 years £101,531.
- At 5% interest, the monthly payment on an interest-only mortgage will be £725 and the total interest paid over 25 years £217,500. The monthly repayment on a repayment mortgage will be £1,017 and the total interest paid over 25 years £131,156.
Part-and-part mortgages
Part-and-part mortgages are a blended product combining both interest-only and repayment mortgages. This solution is ideal for property investors who have a repayment vehicle in place, but that only covers part of the total property purchase. This means that a proportion of the mortgage can be repaid as a repayment mortgage, and the balance paid as interest-only, with the assurance of a repayment vehicle in place to cover the balance. The benefit of part-and-part mortgages is that it provides a compromise between the two mortgage options. Overall, monthly payments will be lower than for a simple repayment mortgage, but will also account for the capital repayments required to lower the balance outstanding to match the value of the repayment vehicle.
Selecting an interest-only mortgage
Interest-only mortgages are best suited to buyers who understand the concept and whose finances and circumstances make them eligible. Please note that not all lenders offer interest-only options, so if you think this is right for you, please give the team a call and we can advise on the best rates for your circumstances. Some buyers in areas where housing prices are very high consider interest-only mortgages a more cost-effective option than renting a residence. Buy-to-let investors often prefer interest-only mortgages to reduce cash flow outgoings and choose to make instalments against the outstanding capital at regular periods. This system also provides a viable opportunity to expand a property portfolio in an area where the value of a property is expected to rise, thus delivering a profit at the point of resale after the capital has been repaid.
Choosing an interest-only mortgage provider
Interest-only mortgages are less common than they used to be and therefore are not available through all lenders. If you need help finding an interest-only mortgage lender, give us a call! Revolution Finance Brokers work with clients from first-time buyers to property investors and pride ourselves on finding the best product for every client. If you need any advice about finding the best mortgage for you or working out which option will suit you, get in touch.
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2023-05-09 
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