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Interest Only Mortgages
The current mortgage market in 2018/19 has seen some massive changes in the way in which Interest only mortgages are now viewed by lenders. As a result of the recession back in 2008 lenders were very cautious coming out of the recession in 2013/14 and interest only plans were rare.
We have now seen a complete change of attitude with some lenders allowing a percentage of the mortgage to be on interest only for older clients when they are comfortable with the ability to repay the debt within the mortgage term.
With a population that is now living that much longer, equity release has until now been the product of choice with clients using the equity in their property to make the repayments to the lender and for the client to be able to have access to a lump sum to enable them to have a comfortable life.
The other choice may now be having an interest only mortgage which can be serviced by the client’s pension / investment income which could run until age 99. These mortgages would normally be limited to 25% of the value of the property subject to affordability. What we now have is real choice and this is a very strong growing market.
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Lenders will still consider interest only mortgage plans but you should have in investment/pension/savings plans that are in place and can repay the capital. The stock market has also taken a real hit in values which again places a big strain on the ability of some plans to repay the debt, I am sure that in the future clients may take more of a balanced view towards lending and how they plan to repay the debt, with a part of the mortgage being capital and interest and the other part linked to investment plans with various end dates that may help to reduce the debt at an earlier stage in the life of the mortgage term.
As we come out of the market downturn lending will become more flexible but the lessons should be learned do not rely on the rise in property values to repay your mortgage and investments do go down as well as up. If the idea of renting is not desirable and you feel that you could not afford a mortgage at the present time then why not take an interest only mortgage until you are able to pay capital and interest. Interest only mortgages is where your monthly payments are composed of interest only ignoring capital, as a result the balance of your mortgage will remain the same and will not be reduced until you decide to pay a mix of capital and interest.
Some lenders charge interest on a daily basis and others on an annual basis, if possible its ideal to avoid annual interest calculations as you pay the same amount of interest throughout the year until the year is up and the interest is recalculated which results in you paying more. If the interest is calculated on a daily basis the interest is recalculated as you pay the capital on a property meaning a deduction in the interest rate. Interest Only Mortgages If you proceed in taking out an interest only mortgage it is important that you consider how you will pay the mortgage at the end of the term. Many use interest only mortgages to stand ground in their new property until they have a secure income and or financial routine, many first time buyers also opt for interest only mortgages to get onto the property ladder.
It is also important to remember that failiure to repay the mortgage at the end of the term can lead to reposession. Interest only mortgages are not always suitable as borrowers should be aware that when switching from interest only to capital and interest will mean an increase in the monthly payments, it is important that you consult with a qualified financial adviser such as us before you opt for an interest only mortgage. Popular Uses Interest only mortgages for first time buyers Interest only mortgage for buy to let or investment properties Remember! Interest only mortgages are generally lower then mortgage payments but this will change upon switching to capital and interest.
It is always a good idea to consider your affordability, remember if you can afford capital repayments during the term ensure that you can maintain throughout the duration of the term to avoid risk of property repossession. We are independent financial advisers regulated by the FCA if we can assist you further with your enquiries we will do our best to help you. Give us a call today on 0345 2 605 506 or fill out our call back form and we will call you. This is a very popular way to buy a home. This type of mortgage is designed to offer the lowest monthly payment possible as you are not paying off any of the capital balance of the Finance. Due to the lower payment, you may be able to afford a more expensive property and stay within your interest only mortgage budget.
The overall cost for comparison is 5% APR. The actual rate available will depend on your circumstances. Ask for a personalised illustration.