Some lenders will also only lend on an interest-only basis to high-net-worth individuals with incomes of £100,000 or more.
Typically lenders will only allow you to borrow up to 50% of the property value, so you will need to have a large deposit or equity in your home to make up the rest. Residential interest-only mortgages have strict lending criteria. You can get an interest-only mortgage on a residential or buy-to-let basis however, the lending criteria might mean this isn't a viable option for you if you're a first-time buyer.
#Interest only mortgage calculator with taxes and insurance full
This makes interest-only mortgages risky, as they require borrowers to save or invest enough during the course of their mortgage term to be able to pay off the full amount at the end.įor this reason, interest-only deals are only really suitable for those that have a lot of equity and have a repayment plan to pay the capital lump sum back. With an interest-only mortgage, your monthly repayments will be lower but your repayments won't help you reduce your debt. Is an interest-only mortgage right for you? We've explained how they work in our guide to retirement interest-only mortgages. They can be a great option for people who are nearing the end of an existing interest-only mortgage term and unable to repay the loan, or those who are looking to release some cash from their property without taking out an equity release product. You might see these referred to as 'RIO mortgages'. Some lenders offer interest-only mortgages specifically designed for people in or nearing retirement. Retirement interest-only mortgages (RIOs) Find out more: repayment mortgages explained.Under these terms, you'd pay £105,800 in interest - making it £81,700 cheaper than the interest-only mortgage. If you borrowed £250,000 on a repayment mortgage with the same terms, you'd repay £1,186 a month and would have cleared the capital after 25 years. On a £250,000 interest-only mortgage charging 3% over 25 years, you'd repay £625 a month, equating to £187,500 over the 25 years, but would also have to pay back £250,000 at the end of the deal.
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