Interest-Only Mortgages Set for Return

couple searching the internet for interest only mortgages online

There’s a growing demand for interest-only products with interest-only mortgages set to return in full force. According to recent research, there are around 200 interest-only mortgages that borrowers can choose from.

This is close to double the figures released in 2013. Interest-only mortgages are offered to both new and existing customers which makes them an enticing choice for many different home buyers. In fact, there are new options that will allow borrowers to get up to 75% of the property’s entire value.

 

The growing trend of interest-only deals

Interest-only mortgages work by only requiring the borrower to pay back the interest owed at the end of each month. The remaining capital is paid back to the lender at the end of the mortgage term. This makes interest-only mortgages very popular with budding home buyers because it allows them to keep payments low throughout their entire mortgage term.

Interest-only mortgages were popular in the past before the credit crunch in 2008. In fact, around 40% of all mortgages were interest-only in the past but fell quickly once concerns were raised regarding the safety of interest-only lending. Since then, strict regulations have been introduced since 2011 following the Mortgage Market review which clamped down on interest-only deals. Borrowers were only able to take out interest-only mortgages if they were able to prove that they could repay it once the mortgage term ended.

Lately, more lenders are opening up to the idea of lending on an interest-only basis, with some accepting cash savings or the sale of the property as a way of repaying capital once the mortgage term ends. Lenders do limit the amount you can borrow on an interest-only basis, such as restricting lending to a maximum of 75% or less of the property value. Other lenders will only work with borrowers that hold a minimum level of equity in their homes, often as much as £200,000 or more and that they earn at least £75,000 per year.


 

Investing in an interest-only mortgage

An interest-only mortgage can be a viable way to purchase a home but you must have a clear repayment strategy in order to be certain that you can clear your debt in full once the mortgage term ends. It’s recommended that this plan is regularly reviewed to ensure that you’re still on track with your repayments.

There are also ways to reduce your debt, even if you already have a repayment strategy. For instance, lenders allow you to make over payments of up to 10% of the mortgage value each year. This means you can save thousands in interest and also pay off what you owe more quickly. It also helps to build up the level of equity on your property which gives you access to different mortgage deals when it comes to renegotiating the terms of your mortgage.

You also have the option of switching your mortgage to a repayment plan at a later date. It will increase the amount of money you pay on per month, but also means that the mortgage itself is lowered.