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Interest-only mortgage cost

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Feb 6, 2023

Interest-only mortgage cost

Interest-only mortgage deals are expensive and leave you with the entire loan amount to repay at the end of the mortgage. This type of borrowing is possible in certain circumstances.

Before looking for interest-only loans, it is essential to understand the whole picture. It is also advisable to seek professional assistance from a mortgage broker to help you determine the potential costs and consequences. This guide provides all the details.

Contact us today to discuss interest-only mortgages, how the mortgage term works and to be introduced to a mortgage lender to suit your needs. We have a few mortgage providers lending various mortgage deals.

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What is the cost of an interest-only mortgage?

Monthly payments will be much cheaper than a repayment loan because you only pay the interest on the loan, not the capital or interest sum. The interest rate offered by your mortgage lender will determine the actual amount of your monthly mortgage repayments.

Remember that although your monthly repayments may be lower than those of a standard repayment mortgage loan, the total cost of the loan over its term will be greater. You will still have to pay the entire loan debt at the end of the term but will have paid higher interest over the years.

We will also discuss additional fees when you speak with a specialist mortgage broker.

How do other factors impact the cost?

  • The term length: Although it doesn’t affect the rate you’ll pay but will impact how much you pay over the long term, the term length will impact how much you spend. Paying higher interest over a longer period means you will pay more. You can have interest-only right now but later decide to repay the loan. Your interest rates will drop.

You will likely receive a lower loan-to-value offer due to the higher risk of interest-only loans. They will typically be at 75%, but some lenders offer higher rates. Your deposit will make you a more attractive candidate and increase your chances of getting a lower interest rate.

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Calculate the price you could end up paying for interest-only mortgages

Use our online calculator to estimate the cost of an interest-only mortgage. This calculator can be used to compare repayment mortgages, but you have the option of converting the results to interest later.

These figures are based on broad assumptions. They don’t account for all the nuances of mortgage applications.

Talk to a specialist broker here to get a more precise and detailed estimate of the amount you will pay.

You should also consider other fees and costs

Additional fees may apply to your payment, as detailed above. These fees are:

  • Arrangement fees: This is a set-up fee charged by the lender. It can also be called a product or completion fee. They can go as high as £2,000. It can be added to your mortgage or paid upfront.
  • Valuation fees: This is a basic survey the lender does to assess the property. The cost of this service varies, but some will charge a nominal fee.
  • Stamp duty: This is a tiered tax you pay when purchasing property or land valued at more than £125,000.
  • Legal fees: Also called conveyancing, include everything legal related to your purchase. This consists of the solicitor’s time, transfer fees, searches, and land registry. They can also go up to £1,000.
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How a broker can save you money on an interest-only mortgage

A broker specialising in interest-only mortgages can be very beneficial for many reasons. They are knowledgeable about the market and have access to mortgage land areas that most people don’t know.

A knowledgeable and impartial advisor will be able to understand the complexities of this type of borrowing and the potential consequences. They will offer support, guidance, and practical assistance in finding the right deal.

Recognising whether interest-only will make a sound and prudent financial decision over the long term is essential. This can be daunting as it can be challenging to make such a big financial decision. A broker can help you navigate the application process and guide you to the right people. They will also negotiate on your behalf.

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Is an interest only mortgage worth the additional cost?

Interest-only mortgages are possible in some circumstances, even though you won’t be able to clear any outstanding loan balances. Property developers can reap cash flow benefits and the potential for higher property prices in the future while retaining the use of lower monthly bills.

People who are looking to save money immediately and have the potential to invest their capital later on, can pay only interest. However, they should also expect to be able to retire the property in full in the future through inheritances, stock price rises or other investments.

Interest-only mortgages can be risky. Experts cannot always predict the future. However, a competent advisor will help you decide and weigh the risks and rewards.

Match with an interest-only mortgage specialist

Our specialist interest-only brokers are highly qualified and have your best interests in mind. They have five-star customer service ratings, are highly qualified and fully understand the complexities of interest-only borrowing. The financial conduct authority regulates them.

We can match you with the right advisor for a free initial consultation. Contact us today or send an enquiry. We are looking forward to hearing from you.

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