Interest only mortgages can be an ideal solution for high net worth clients as it provides them with flexibility in terms cash flow, and the opportunity to maximise on record low rates.
Clients want as much of their mortgage on interest only, as it keeps monthly payments to a minimum and allows them to use the equity from the sale of the property to repay the loan. This is usually a viable option as, typically, at the end of a 25-year term, for example, the property will be worth more.
Typically, lenders only offer interest only mortgages on loans above £1million for up to 50% of a property’s value – with 75% of the loan repayable on an interest only basis, and the remaining 25% on capital and interest.
The benefits of interest only mortgages
An interest only mortgage can provide clients with a surprising degree of flexibility. The client is committed to lower monthly payments with an interest only mortgage, meaning that they can pay off more capital when they are able to. This makes interest only ideal for high net worth individuals who are self-employed or freelance with large dividends, whilst also beneficial to those who want tighter control of their financial commitments throughout the mortgage term.
Another key benefit can be found in cost savings and interest only mortgages are a good option for clients who have a complex and irregular income made up of variable bonuses and commissions. It can work to keep your monthly obligations low and to make bigger lump sum payments to reduce your capital when you have more money. Clients can customise their repayment schedule to suit their situation, so when they make additional payments against capital owed, this will result in lower required payments in following months as the capital they are paying interest on has decreased.
Interest only mortgage products for loans over £1million
A large amount of our business involves securing large mortgages for clients on an interest only basis, and there are a number of lenders who offer this, recognising their place in high value loans.
One of the lenders we work with will offer 80% loan to value (LTV) above £1million, with 75% interest only and 5% capital and interest. This means mortgage payments are kept to a minimum whilst still paying down some of the loan.
The rate for this product is 1.84% fixed for two years, or 2.39% for five years, with a £199 lender arrangement fee – as most lenders cap out at 75%, this really is an excellent offering.
Capital and interest means a client is playing part of the loan – in this case, 75% – on an interest only basis, and part – in this case, 5% – on a repayment basis. This means a client is paying down some of the property’s value, whilst also remaining liquid thanks to the interest only element.
Additionally, there is a bank who will loan 75% LTV above £1million, with 50% interest only, at a rate of 1.34% 2-year fixed or 1.95% for a 5-year fixed product. This product works well for clients who have a bigger deposit and want to make larger repayments on the loan.
For more information on interest only mortgages speak to one of our expert brokers today and we will take the time to answer your questions and understand your situation in full. You can find out more about the advantages of interest only loans by taking a look at our video below: