A simples guide

Interest only mortgages

Interest only mortgages are not as common today as they were just a few years ago, but they’re still available to the right buyer. So if you want to own a property, but you want to keep the repayments low, then let us guide you through the interest only mortgage maze by placing all the deals in one place. A simple comparison, after all, is the easiest way to choose your deal. 


What is an interest only mortgage?

Essentially, with interest only mortgage rates, you’re paying the interest on the loan without making any kind of payment on the money that you’ve borrowed. So at the end of the mortgage term you owe exactly what you borrowed in the first place and you’ll have to find a way to pay off this outstanding amount at the end of the term.  

Many banks insist on a separate account or a repayment vehicle, where you save to pay the mortgage off at the end of the term. Normally that money goes into a long-term ISA or a stock market-linked account that makes the money work hard for you. Theoretically it can work well, but the whole concept is fraught with risk and that’s why many banks have simply stopped offering them.

There is no certainty that an investment vehicle will make enough to pay off the balance and settle the mortgage, so you could end up with a significant shortfall at the end of the term.

If this was the case with rising property prices, the lender used to be covered. The property crash showed the financial world they simply could not rely on that anymore. If the lender had to sell the property to cover the cost of any shortfall in the loan, it may not cover the outstanding amount.

It can also cost more to take an interest only mortgage, as you pay interest on the whole amount for the whole term rather than gradually chipping away at the money owed and therefore only paying interest on an amount that is decreasing over time. You should always take expert financial advice if you’re considering taking an unconventional approach to your 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.

In essence you’re taking responsibility for the sum at the end of the mortgage period. That is a big undertaking and asking the bank to underwrite that in any way, shape or form is never going to be simple.

There are some obvious benefits. The repayments are much lower, even though the full capital amount sits there like an elephant in the room. It can be effective, too, as many Buy to Let landlords have opted for interest only mortgages and then put any profit from rent towards the capital amount. 

mortgage application form

What is a part and part mortgage?

This 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, the basic way it works is that 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 is less money to repay at the end of the term. The interest you owe on the repayment part of the mortgage will decrease over time because the balance is decreasing.

So if you’re interested in an interest only mortgage deal then start a mortgage price comparison with us now and see how much you could save!  

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