Unlike a typical capital repayment mortgage, if you take out a mortgage on an interest-only basis you only pay interest to the lender for the full term, at the end of which you owe exactly the amount you borrowed. Over the past decade, the Financial Conduct Authority have placed restrictions on lenders to ensure their lending criteria realistically reflects their clients’ capability to afford interest only mortgages. This is due to the fact that put simply, an interest only mortgage is an extremely beneficial financial product with the potential to be misused.
At Enness, interest only mortgages constitute a huge part of our business. We believe that they are an essential product – especially for London property owners – and can prove an extremely rewarding tool provided you have a justified, sensible repayment strategy in place. We have strong relationships with over 45 private banks, the majority of whom offer interest only mortgages on evaluation of the client’s financial background. For high net worth individuals who receive large bonuses and incomes each year, this has meant their sizeable assets have allowed them more control over their repayment schedule, rather than the bank.
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.
Lenders have also made a recent effort to improve flexibility for borrowers, by relaxing criteria as a result for the demand for the mortgage on the market. For example, one lender with whom we work closely with has recently dropped their minimum income requirement for interest only mortgages from £100,000 to £50,000, whilst there are now many other interest only mortgage offers on the market which allow using the sale of a property or other assets as repayment.
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.
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.