A guide to interest only mortgages

What are the disadvantages?

• It can cost you more in the long run: with an interest only mortgage, you pay interest on the whole amount for the whole term rather than gradually chipping away at the money owed. Therefore, only paying interest on an amount that is decreasing over time.  
• There is no certainty: if it’s an investment there’s no guarantee that it will be enough to pay off the balance and settle the mortgage. You’ll have to have some plan to pay off the balance at the end of the term.
• The banks deem them to be risky: theoretically it can work well, but as it is fraught with risk and that’s why many banks have stopped offering them. They may insist on you saving to pay the mortgage off at the end of the term in a long-term ISA or a stock market-linked account.  

You should always take expert financial advice if you’re considering taking an interest only mortgage. 

Can I get an interest only mortgage with bad credit?

It’s possible to get an interest only mortgage with bad credit, but it isn’t easy to get a mortgage at all in today’s risk-averse lending system.

A part and part mortgage is a halfway house between an interest only mortgage and a capital repayment mortgage, which may be simpler to qualify for if you have bad credit.  

Although we don’t offer this type of mortgage online, this is something our broker partner moneyQuest mortgage brokers could advise you on by calling them on 0141 243 5633. You choose how much of the loan will be interest only and how much will be repayment in full.

This can bring down your monthly repayments but also ensure some of the balance is paid off, so there’s less money to repay at the end of the term. Plus, the interest you owe on the repayment part of the mortgage will lessen over time as the balance decreases.