Do All Lenders Offer Interest Only Mortgages?

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Do all lenders offer interest-only mortgages?

Most high-street lenders offer Interest-only mortgages.

Some will want to see proof that you have a suitable plan in place for repaying the capital sum at the end of the mortgage term this is known as a repayment vehicle.

However, they are not required to ask and the majority will take your word for it.

Many lenders also offer part and part mortgages, where part of the mortgage is interest-only and the rest is repayment.

To find out more about these, read The part and part mortgage.

Another way to combine the features of interest-only and repayment mortgages is to choose an interest-only mortgage with flexible features.

You can then use surplus cash say, from work bonuses or unexpected windfalls to make occasional lump sum capital repayments.

To learn more about this, go to The flexible mortgage.

Most lenders will allow you to switch from an interest-only to a repayment basis during your mortgage term.

This is an increasingly popular option with first-time buyers, who need to keep costs down in the early years.

But don't be tempted to wait too long to make the change, as interest-only mortgages are actually more expensive than the repayment variety over the long term.

For more on this, see How to change from an interest-only to a repayment mortgage

However, lenders may be less keen to see borrowers move from repayment to interest-only as this can be a sign that they're in financial difficulties.

To ensure you make the right choice for your needs, it's always advisable to consult an independent mortgage adviser.

Are interest-only mortgages new?

Interest-only mortgages have been around for several decades, but in the past they were often known as endowment mortgages.

This is because they were made up to two elements:

• An Interest-only mortgage and

• An endowment policy. This is a stock market based investment policy designed to mature just as the mortgage ends, providing a payout to clear the outstanding capital debt.

Well, that was the theory anyway. The reality has proved to be rather different

As anyone who has an endowment mortgage will tell you, most of them have not done anything like as well as was hoped.

Poor investment returns mean many endowment holders are facing serious shortfalls.

For more on endowment mortgages, go to The endowment mortgage and What went wrong with endowments?

Nowadays, you can use any kind of investment an Isa (individual savings account), a pension, other property etc as a vehicle for repaying your capital debt.

However, there are risks with all of these and it's essential to discuss them fully with an independent financial adviser before committing yourself.

To read more on this subject please see the list below or your mortgage guide or your home buying guide

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