What Is an Interest-Only Mortgage?

An interest-only mortgage is a type of mortgage where you only make interest payments each month, as opposed to the interest and capital payments you would make on a repayment mortgage.

Making interest payments each month stops the mortgage balance from increasing but doesn’t go towards paying it off. You pay the full mortgage balance at the end of the mortgage term or when the property is sold.

The interest-only mortgage lender will require that you provide evidence of a suitable repayment vehicle – i.e. how you’re going to repay the mortgage at the end of the term.

Interest-Only Residential Mortgage

Most residential mortgages are repayment but some people find that residential interest-only mortgages suit them better, typically because the monthly payments are lower.

Would an Interest-Only Residential Mortgage Suit You?

You may find an interest-only residential mortgages useful if:

  • You have an alternative repayment strategy – e.g. you have equity in other properties that you could sell, or you have other investments
  • You’re planning on downsizing at the end of the mortgage term when it’s time to repay the mortgage – e.g. you intend on moving after your children have left home as you don’t want to maintain a big house
  • You want to remortgage onto an interest-only product because you want to reduce your monthly payments and you have a suitable repayment vehicle

Interest-Only Buy-to-Let Mortgage

Most buy-to-let mortgages are arranged on an interest-only basis. If this is the type of mortgage you’re after then see our buy-to-let mortgage page.

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Compare Interest-Only Mortgage Rates

Look at interest-only mortgage rates on the market right now with our free best buy tool.

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Scheme ID 64229
Initial rate ? 0.91% then 3.59% (variable)
Monthly repayments ? £ 1,118
Type/Duration ? Variable
Scheme fees ? £1,519
Cost comparison ? £28,361

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £0

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges £65, plus (1.5% in year 1, 0.75% in year 2)

Other info

Exit fees £65
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a fixed rate for 2 years at 0.91%, and then on a variable rate for 23 years at 3.59%. This would require 24 payments of £1,118.44 and 276 payments of £1,483.39. The total amount payable would be £437,842 made up of the loan amount plus interest (£136,323) and fees (£1,584 which includes exit fees of £65). The overall cost for comparison is 3.22% APRC representative.

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Scheme ID 64221
Initial rate ? 0.91% then 3.59% (variable)
Monthly repayments ? £ 1,118
Type/Duration ? Variable
Scheme fees ? £1,519
Cost comparison ? £27,861

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £500

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges £65, plus (1.5% in year 1, 0.75% in year 2)

Other info

Exit fees £65
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a fixed rate for 2 years at 0.91%, and then on a variable rate for 23 years at 3.59%. This would require 24 payments of £1,118.44 and 276 payments of £1,483.39. The total amount payable would be £437,342 made up of the loan amount plus interest (£135,823) and fees (£1,584 which includes exit fees of £65). The overall cost for comparison is 3.22% APRC representative.

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Scheme ID 10868
Initial rate ? 0.94% then 3.59% (variable)
Monthly repayments ? £ 1,122
Type/Duration ? Variable
Scheme fees ? £1,025
Cost comparison ? £27,765

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £200

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges 1.5% until 30-11-22, 0.75% until 30-11-23

Other info

Exit fees £0
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a fixed rate for 2 years and 4 months at 0.94%, and then on a variable rate for 22 years and 8 months at 3.59%. This would require 28 payments of £1,122.49 and 272 payments of £1,478.38. The total amount payable would be £434,374 made up of the loan amount plus interest (£133,349) and fees (£1,025 which includes exit fees of £0). The overall cost for comparison is 3.14% APRC representative.

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Scheme ID 60256
Initial rate ? 0.94% then 3.54% (variable)
Monthly repayments ? £ 1,122
Type/Duration ? Variable
Scheme fees ? £1,016
Cost comparison ? £27,956

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £0

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges 2% until 30-11-22, 1% until 30-11-23 with a fee free allowance of 10%

Other info

Exit fees £0
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a fixed rate for 2 years and 4 months at 0.94%, and then on a variable rate for 22 years and 8 months at 3.54%. This would require 28 payments of £1,122.49 and 272 payments of £1,471.13. The total amount payable would be £432,593 made up of the loan amount plus interest (£131,577) and fees (£1,016 which includes exit fees of £0). The overall cost for comparison is 3.10% APRC representative.

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Scheme ID 55808
Initial rate ? 0.94% then 3.59% (variable)
Monthly repayments ? £ 1,122
Type/Duration ? Variable
Scheme fees ? £995
Cost comparison ? £27,635

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £300

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges 2% until 30-11-22, 1% until 30-11-23

Other info

Exit fees £0
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a fixed rate for 2 years and 4 months at 0.94%, and then on a variable rate for 22 years and 8 months at 3.59%. This would require 28 payments of £1,122.49 and 272 payments of £1,478.38. The total amount payable would be £434,244 made up of the loan amount plus interest (£133,249) and fees (£995 which includes exit fees of £0). The overall cost for comparison is 3.14% APRC representative.

0344 346 3672

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Scheme ID 55792
Initial rate ? 0.94% then 3.59% (variable)
Monthly repayments ? £ 1,122
Type/Duration ? Variable
Scheme fees ? £995
Cost comparison ? £27,935

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £0

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges 2% until 30-11-22, 1% until 30-11-23

Other info

Exit fees £0
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a fixed rate for 2 years and 4 months at 0.94%, and then on a variable rate for 22 years and 8 months at 3.59%. This would require 28 payments of £1,122.49 and 272 payments of £1,478.38. The total amount payable would be £434,544 made up of the loan amount plus interest (£133,549) and fees (£995 which includes exit fees of £0). The overall cost for comparison is 3.14% APRC representative.

0344 346 3672

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Scheme ID 45883
Initial rate ? 0.95% then 4.34% (variable)
Monthly repayments ? £ 1,124
Type/Duration ? Variable
Scheme fees ? £1,499
Cost comparison ? £28,221

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £250

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges £250, plus (2% until 30-09-22, 1% until 30-09-23)

Other info

Exit fees £50
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a fixed rate for 2 years and 2 months at 0.95%, and then on a variable rate for 22 years and 10 months at 4.34%. This would require 26 payments of £1,123.84 and 274 payments of £1,593.37. The total amount payable would be £467,102 made up of the loan amount plus interest (£165,603) and fees (£1,549 which includes exit fees of £50). The overall cost for comparison is 3.81% APRC representative.

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Scheme ID 55236
Initial rate ? 0.98% then 3.59% (variable)
Monthly repayments ? £ 1,128
Type/Duration ? Variable
Scheme fees ? £1,025
Cost comparison ? £27,845

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £250

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges 0.5% until 30-11-22, 0.25% until 30-11-23

Other info

Exit fees £0
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a tracker rate for 2 years and 4 months at 0.98%, and then on a variable rate for 22 years and 8 months at 3.59%. This would require 28 payments of £1,127.90 and 272 payments of £1,479.02. The total amount payable would be £434,650 made up of the loan amount plus interest (£133,625) and fees (£1,025 which includes exit fees of £0). The overall cost for comparison is 3.15% APRC representative.

0344 346 3672

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Scheme ID 18975
Initial rate ? 0.99% then 3.59% (variable)
Monthly repayments ? £ 1,129
Type/Duration ? Variable
Scheme fees ? £1,499
Cost comparison ? £28,592

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £0

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges 2% until 30-09-22, 1% until 30-09-23

Other info

Exit fees £0
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a fixed rate for 2 years and 2 months at 0.99%, and then on a variable rate for 22 years and 10 months at 3.59%. This would require 26 payments of £1,128.86 and 274 payments of £1,480.46. The total amount payable would be £436,495 made up of the loan amount plus interest (£134,996) and fees (£1,499 which includes exit fees of £0). The overall cost for comparison is 3.19% APRC representative.

0344 346 3672

or

Enquire now

Scheme ID 41836
Initial rate ? 0.99% then 3.59% (variable)
Monthly repayments ? £ 1,129
Type/Duration ? Variable
Scheme fees ? £1,499
Cost comparison ? £28,592

Fees & Charges

Booking fees £0
Arrangement fees £0
Valuation fees £0
Other fees £0
Cashback £0

Flexibility

Max LTV 60%
Overpayments allowed? Yes
Early Repayment charges 2% until 30-09-22, 1% until 30-09-23

Other info

Exit fees £0
Basic legals £0

Representative example: A mortgage of £300,000 payable over 25 years on a repayment basis, initially on a fixed rate for 2 years and 2 months at 0.99%, and then on a variable rate for 22 years and 10 months at 3.59%. This would require 26 payments of £1,128.86 and 274 payments of £1,480.46. The total amount payable would be £436,495 made up of the loan amount plus interest (£134,996) and fees (£1,499 which includes exit fees of £0). The overall cost for comparison is 3.19% APRC representative.

0344 346 3672

or

Enquire now

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How Can John Charcol Help You Find an Interest-Only Mortgage?

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With over 45 years of service, we've seen it all. We can save you money, time and make buying your property easy.

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We work around your schedule to help you arrange a mortgage that suits your circumstances, no matter how complex.

Process for Buying a Home/Remortgaging

1. First Conversation with Adviser

When you phone us, you can either arrange a phone appointment with your adviser or a face-to-face meeting – whatever suits you. Your adviser will ask you some questions then go away and find you the best deal for your circumstances and future needs. They’ll organise a follow up during which they’ll present you with what they’ve found.

2. Decision in Principle

Once you’re happy with their recommendation, they’ll go about securing your DIP (Decision in Principle) - which is basically a promise from the lender that they’ll loan you money on the condition that the information you’ve provided is correct and subject to a valuation of the property.

3. Offer on Property/Remortgaging

After the lender has agreed your scenario, you’ll be in a position to make an offer on a property or move forward with remortgaging.

4. Pre-Application and Submission

Following the acceptance of your offer, we’ll send you some information which explains all the documents we need to submit to the lender. You’ll be assigned a client relationship manager who’ll check and submit certified copies of your documents; they’ll liaise with both you and the lender. Your adviser will then submit the fully packaged mortgage application.

5. Lender Underwriting and Valuation

The lender will underwrite your application; this basically means they’ll verify that the information you’ve provided is correct and review all your documents for themselves. They’ll also instruct a valuation for their purposes on the property to make sure there are no significant problems with it.

6. Mortgage Offer

If the lender is happy with everything they’ve found, they’ll send you a mortgage offer. They’ll also send us a copy.

7. Conveyancing

After you’ve accepted your mortgage offer, you’ll go through the legal part of the process, known as conveyancing. This is where the solicitors/conveyancers draw up contracts and organise the actual, legal purchase of the property/remortgaging. If you're buying, you’ll also need to arrange buildings insurance at this stage, making sure it’s in place from exchange.

8. Exchange and Completion

If you’re buying a property, your conveyancer/solicitor will exchange contracts with the seller’s conveyancer/solicitor; it’s at this point that you would put down your deposit and be legally bound to the property. The purchase will complete when the money is transferred on an agreed-upon date. If you’re remortgaging, then your conveyancer/solicitor will set a date to draw down the funds and pay off any existing lender(s) once the mortgage offer’s released.

JC Legal

We can refer you to a conveyancer from our carefully selected panel of conveyancers and solicitors. Our recommendation will be based on your situation and timeframe to ensure your move goes according to plan. 

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Concierge 

Through our partnership with Just Move In, we can help you move into your new home, set up utilities, register for Council Tax and more. There’s no arrangement fee and you could save up to 8 hours of hassle.

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Home Insurance

We can find you suitable buildings and contents insurance through our partnership with Legal and General.

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Protection

Ever thought about mortgage protection? Our in-house team can arrange certain life assurances tailored to your requirements.

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Interest-Only Mortgage Criteria

Below we’ve listed some criteria you must meet to get an interest-only mortgage:

  • You must provide a minimum deposit of 25% for an interest-only mortgage
  • You must meet a minimum income requirement set by some lenders
  • You must be able to provide evidence of how you will repay the mortgage once the term is complete - e.g.
    • You’ll sell the property and use the funds from the sale to repay the mortgage
    • You’ll have access to funds by the end of the mortgage term
    • You have financial investments
    • You have equity in other properties that you intend to sell
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First Mortgage Applicant

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Second applicant

Second Mortgage Applicant

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As a guide, you could potentially borrow around:

 

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Interest-Only Mortgage FAQs

What Are the Main Benefits of an Interest-Only Mortgage?

The main benefit of an interest-only mortgage is obviously that you only make interest payments each month – not both interest and capital payments.

Who Are the Best Interest-Only Mortgage Providers?

A lot of lenders offer interest-only products. There’s no single, best provider as the best provider for you will depend on your unique situation.

Can You Get an Interest-Only Mortgage with a 90% Loan-to-Value?

For most lenders, the maximum LTV (loan-to-value) you can get on an interest-only mortgage is 75%. However a few lenders will allow LTVs up to 80%.

There’s also the other possibility of a part interest-only and part repayment mortgage. Some lenders will allow part interest-only and part repayment mortgages up to 85% LTV, but not 90%. For more information about this kind of specialist mortgage arrangement, speak to an adviser on: 03304 332 927.

What Are Some Interest-Only Mortgage Rates?

You can compare the best interest-only mortgage rates currently on the market by using our free best buy tool.

NO MATTER
HOW COMPLEX

Talk to our experts today

03304 332 927

Or arrange a call back

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