If you’re looking for a large interest-only mortgage, you’ll likely already know how challenging this can be to arrange.
Many lenders don’t offer interest-only mortgages at all, and those who do will generally only offer up to 50% of the loan on an interest-only basis. This is complicated further if you’re looking for a mortgage over £1million; even on a capital repayment basis, many lenders will cap borrowing at 60% loan to value (LTV).
However, there are a few niche lenders with a more substantial offering when it comes to interest-only mortgages. Our product of the week is a 5-year fixed rate of 2.49%, offering 80% LTV with 75% on an interest-only basis. Available for loans between £1million and £2million, this lender takes a flexible and holistic approach to its clients.
In my opinion, this is one of the best interest-only products currently on the market. In addition to helping you minimise your monthly payments, this mortgage product also offers an aspect of flexibility. If you would like to make yearly overpayments—perhaps if you receive bonus income—this lender will permit you to pay up to 10% of the outstanding loan without a penalty, so you can reduce the loan amount outstanding.
- Interest-only mortgage
- 5-year fixed rate
It’s very rare to secure an 80% LTV mortgage for mortgages above £1million, so if you’re a high net worth individual looking for a £1million mortgage or higher, this product is worth your consideration.
This product is only available for properties in London and the South East.
How do interest-only mortgages work?
For an interest-only mortgage, the borrower will only repay the interest on the mortgage, as opposed to repaying capital on a monthly basis throughout the duration of the loan. Then, at the end of the mortgage term, the borrower will be expected to repay the whole sum.
As such, if you take out an interest-only mortgage, you aren’t actually paying back any of the debt. Therefore, you’ll need a demonstrable plan in place for what your ‘exit strategy’ will be.
If you can demonstrate how you’ll repay the loan and keeping your monthly cash flow high is a concern of yours, an interest-only mortgage can be a great way of minimising your monthly payments.