Interest only mortgages

Selecting interest only as a repayment method means your client's monthly payment will only cover the interest charged on their mortgage, and will not reduce their mortgage balance, resulting in the full amount borrowed still being owed at the end of the mortgage term. To qualify for an interest only repayment method, clients must have means in place to clear this balance at the end of their mortgage term through an acceptable repayment vehicle.

What are the benefits?

There are many reasons our client may an interest only mortgage. Some of the key factors are:

• Lower monthly instalments; or
• Flexibility to choose how you repay your mortgage balance at the end of the term (see acceptable repayment vehicles below).

Who is eligible for an interest only mortgage?

Interest only is available as a repayment method across many of our mortgage products, subject to criteria. Please note, all interest only applications are restricted to a maximum of 75% LTV, unless further restricted by product type.

Acceptable repayment vehicles 

We will only consider interest only mortgage applications where the declared repayment vehicle meets our criteria and has a definite repayment term in place. The following repayment vehicles will be considered:

• Investment product (including pension);
• Legal charge on main residence (subject to criteria, to select this option there must be a minimum of 40% equity in the client's current residential property, or upon remortgage their debt will reduce to a maximum of 60% LTV. Independent legal advice must also be taken); or
• Legal charge on and sale of a second property. 

Retirement interest only (RIO)

Our RIO range can give your client flexibility, whilst still offering them the stability of being a homeowner in retirement. A RIO mortgage differs significantly from a standard interest only mortgage there is no specified repayment vehicle in place and no set mortgage term in which the loan must be repaid. Instead, the mortgage must be repaid following a specified life event such as:

• The death of the borrower or the surviving borrower in the case of a joint mortgage;
• The borrower not having mental capacity in accordance with the Mental Capacity Act 2005; or
• The borrower(s) ceasing to permanently reside at the property.

Your client can use the sale of their property as their selected repayment method, provided they are receiving pension income and have a minimum of 40% equity in their property. Joint applications for a RIO mortgage can be considered where both applicants are aged 55 or over, and can satisfy affordability checks individually. For more information on RIO mortgages, please click here.

For more information on our interest only mortgages, speak to our team today.