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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.
Most residential mortgages are repayment but some people find that residential interest-only mortgages suit them better, typically because the monthly payments are lower.
You may find an interest-only residential mortgages useful if:
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.
Look at interest-only mortgage rates on the market right now with our free best buy tool.
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We work around your schedule to help you arrange a mortgage that suits your circumstances, no matter how complex.
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.
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.
After the lender has agreed your scenario, you’ll be in a position to make an offer on a property or move forward with the remortgaging.
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.
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 you want to buy to make sure there are no significant problems with the property and that it’s worth the amount you want to borrow.
If the lender is happy with everything they’ve found, they’ll send you a mortgage offer. They’ll also send us a copy.
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 buying, you’ll also need to arrange buildings insurance at this stage, making sure it’s in place from exchange.
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.
Not only do we arrange your mortgage, we can find you a conveyancer from our select panel of conveyancers and solicitors. Our recommendation will be based on your situation and timeframe to ensure your move goes according to plan.
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 with our Concierge Service. There’s no arrangement fee and you could save up to 8 hours of hassle.
Below we’ve listed some criteria you must meet to get 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.
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.
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: 0344 346 3672.
You can compare the best interest-only mortgage rates currently on the market by using our free best buy tool.