Use our interest-only mortgage calculator to work out how much you might be able to borrow, based on your income and other factors. Please note that the figure provided by the calculator is for illustration purposes only. The exact amount you will be able to borrow can vary from lender to lender and will be based on your individual circumstances, income sources and credit history. To discuss your mortgage needs in more detail, give us a call today.

How interest-only mortgages work

Interest-only mortgages are home loans where the monthly mortgage payment only covers the interest charged on the total amount borrowed. This is in contrast to a repayment (or “capital and interest”) mortgage, where the payments are structured to cover the accruing interest and repay the amount borrowed over the agreed repayment term.

Because the monthly payments on an interest-only mortgage do not include any payment towards the mortgage balance, the payments can be significantly lower than they would be for an equivalent repayment mortgage. However, to qualify for an interest-only mortgage you must have in place a plan that will enable the total mortgage balance to be paid off in full at the end of the agreed mortgage term – this is sometimes referred to as a repayment vehicle or repayment strategy.

There are a number of different plans that lenders will accept as repayment vehicles for an interest-only mortgage, and this can vary from lender to lender. Examples include endowment policies, pensions, ISAs and, in some cases, the sale of the property itself.

It’s important to be aware that although the monthly payments on an interest-only mortgage are lower than on a repayment mortgage, the total interest charged over the total mortgage term will be higher. That’s because the outstanding balance doesn’t reduce over the term, so even in the final years of the mortgage, you are still being charged interest on the whole amount that you originally borrowed. By contrast, as the balance continually reduces on a repayment mortgage then each month a smaller proportion of the monthly payment goes towards interest, and a larger portion goes towards repaying the debt.

Not all lenders offer interest-only mortgages, but they are available for most types of borrowers, from first-time buyers and home movers to buy-to-let borrowers and people looking to remortgage. This type of mortgage isn’t right for everyone – and it is essential to ensure that you have a suitable repayment vehicle in place to pay off the loan at the end of the mortgage term – but in some circumstances interest-only mortgages can be advantageous.

For some homebuyers, the lower monthly payments on an interest-only mortgage can help with budgeting. This can also apply to borrowers who may have irregular monthly income, such as contractors, freelancers or people who are self-employed. Some buy-to-let property buyers prefer interest-only mortgages because the lower monthly payment allows them to maximise their rental yield, and they either repay the mortgage when the property is sold, or make periodic lump-sum part repayments to pay down the debt.

At IMC Mortgage Brokers we have a team of highly experienced mortgage advisers who specialise in interest-only mortgage lending. We have access to interest-only mortgages from both mainstream lenders and smaller, more specialist lending companies, as well as exclusive mortgage deals that you wouldn’t be able to get if you approached lenders directly. For more information, please contact our team to discuss the benefits of interest-only mortgages and how we can help you get the mortgage that’s right for you.