Part and Part Mortgages

The Part and Part Mortgage

This is a relatively new type of mortgage that’s designed to be a halfway house between an Interest-only mortgage and a repayment mortgage (also known as capital and interest).

The idea is that it combines the advantages of both types, while minimising the disadvantages.

Basically, part of your mortgage is interest-only and the rest is repayment it’s up to you to decide what split you want.


The Pros and Cons

Compared to a repayment mortgage

The monthly repayments are cheaper than for a comparable fully repayment mortgage.

This is because, while you’re paying interest on everything you owe, you’re repaying only part of the capital.

In the long run, though, this makes a part and part mortgage more expensive than a straight repayment loan, as more of your debt remains unpaid during the term and, therefore, collecting interest.


• Compared to an interest-only mortgage

Because of the capital repayment element, the monthly payments are higher than for a comparable interest-only mortgage.

However, it is less expensive over the full mortgage term.

This is because you are paying off some capital as you go, reducing your interest bill and leaving a smaller debt to be settled at the end of the term.


How This Works in Practice

Imagine you agreed to a £150,000 mortgage at 6 per cent interest


• Interest-only

On a fully interest-only basis, this would cost £750 a month giving a total of £225,000 over 25 years.

Add in the original £150,000 which would still need to be repaid

Total cost: £375,000


• Repayment

On a fully repayment basis, it would cost £966.45 a month, adding up to £289,935 over 25 years.

At the end of the 25-year term, you would be debt-free.

Total cost: £289,935


• Part and part

Dividing the debt equally between interest-only and repayment, the monthly cost would be £858, giving a 25-year total of £257,466.

But you would still owe £75,000.

Total cost: £332,466

So, going part and part on this basis would save you £42,534 on the straightforward interest-only deal, but be £42,531 more expensive than the fully repayment option.


Read On