Interest-only mortgages calculator

Interest-only mortgages calculator

These interest-only mortgages are less common than they were in the past. However, many buyers are happy to have this product back from lenders.

Along with providing you with an interest-only mortgage calculator so you can work out roughly how much your mortgage will cost, this article will discuss the availability of interest-only mortgages, their uses, and how to get the best deal.

Online interest-only mortgage calculator

A mortgage calculator makes it easy to estimate the cost of your monthly interest payments. Simply enter the amount you expect to borrow, and then specify how long you want the loan to last. This is normal for first-time mortgage buyers. However, more lenders will now be happy to lend mortgages that can run up to 40 years.

How to calculate your mortgage payments

To calculate your monthly mortgage payments, you will need to identify the interest rate.

An interest only mortgage calculator will determine which type of loan repayment you require: capital and interest, or interest only. If you’re unsure, don’t panic. If you’re not sure, you don’t need to panic. Capital repayments are where you repay a portion of the amount borrowed, plus interest. Interest only is where you pay the monthly interest on the loan.

Your monthly repayments will depend on many factors and your mortgage balance. These include the type of mortgage you choose, how much you need to borrow and whether you’re looking to move or buy a home for the first time. You should also note that the interest rates charged by your mortgage provider can affect the monthly repayments of tracker and variable mortgages.

Get started online

 

Use a mortgage repayment calculator instead!

Budgeting for a mortgage is only possible if you know how much your monthly payments will be. Although it may seem like a smart move to take out a mortgage above your means, depending on which type of mortgage you choose, you could end up paying more than you can afford due to rising mortgage rates. It’s better to choose mortgage repayments you can afford, even if it means borrowing less.

What does the monthly mortgage payment calculator not cover?

Our monthly mortgage repayments calculator does not give an exact estimate of what you will be paying each month for your mortgage.

These figures do not include stamp duty, legal fees and valuation costs, as well as product fees. This calculator is only applicable to residential mortgage repayments. It does not work with buy-to-let mortgages. This calculator is not intended to be an overpayment calculator.

Get started online

 

Do I need to speak with a mortgage broker

The hassle and paperwork involved in getting a mortgage can be eliminated by mortgage brokers.

We also help you get access to rates and products that aren’t open to the general public. The Financial Conduct Authority (FCA), regulates mortgage brokers. They must pass certain qualifications before they are allowed to give mortgage advice.

What is an interest-only loan?

An interest-only mortgage, as you might guess, is a type home loan that only repays the interest each month. The full amount borrowed will remain due at the end of your mortgage term. This must be paid in full.

This can be a great way of keeping costs low over the life of your mortgage. However, monthly payments will be much lower than the total amount you pay to repay capital and interest. As a result, you’ll end up paying more overall.

Mortgage interest is charged on the entire amount you owe. If the amount doesn’t decrease, the interest will not be affected.

You must have a reliable repayment method (method of loan repayment), in order to repay the lender any original capital borrowed at the conclusion of the term. The average term is 25 years.

However, most lenders will require you to agree to your repayment plan as part of the application process. Each lender will have its own list acceptable repayment vehicles. These can include resales of the property, investments, or savings.

Get started online

 

Are they still available to residential properties?

They are available, but they aren’t as easily as residential mortgages. The lending criteria for them tend to be more strict than residential mortgages.

Lenders have been less willing to provide interest-only mortgages for residential properties since 2008’s financial crisis, but they continue to offer them almost exclusively to buy to let investment purchases. However, interest-only mortgages for residential properties have been more common in recent years, though with stricter criteria.

There are often large equity and/or deposit requirements, as well as high income thresholds, for residential purchase. This type of mortgage is only available to wealthy individuals. However, if you meet these criteria, an interest-only mortgage can be used to purchase residential property.

Purchase a second-home

You may be able to get interest-only mortgages from some lenders, but you might need to consult a specialist. The criteria for residential purchases may differ from those that allow them. Therefore, a higher deposit might be necessary to get a second mortgage.

It may be possible to obtain a regulated buy–to-let mortgage from some lenders in certain situations, such as when you are buying a second house for a family member. Our interest-only specialists will be able point you in direction of lenders who are willing to consider such a purchase.

Get started online

 

How much could you borrow

There are many factors that will affect the amount you can borrow, including the purpose of your mortgage. The potential rental income of an investment property is the main determinant of how much borrowing you can make. The multiple of your income will determine the amount you can borrow to purchase a residential property. However, the loan-to value (LTV), offered for residential repayment mortgages with the same income, is likely to be lower.

The mortgage affordability calculator can help you estimate how much loan you might qualify for.

After you have tried it, why not speak to one of our brokers who specialise in this type of home loan?

Criteria for eligibility

Lenders have different criteria, but they will usually be more stringent for residential purchases. The following requirements are expected of you by lenders:

• Income and affordability – You will need to show that you are able to afford the repayments and that your income is at least the minimum required by the lender for this type of mortgage.
• Credit history – Your credit score will have a less significant impact on the outcome of your mortgage application than if you apply for a capital repayment mortgage. This is especially true for buy-to-let mortgages. But, credit problems could still prove to be a problem. There are brokers and lenders for bad credit .
• Age – Lenders have minimum and maximum age requirements. However, some interest-only mortgages can be tailored for older borrowers such as the RIO ( Retirement Interest-only). Some lenders do not have a maximum age requirement.
• Experience – Lenders will prefer to see previous landlord experience, especially in the case HMO (house with multiple occupancy) mortgages. Although there are lenders who will accept first-time landlords in certain cases, they are more likely to be specialist providers.
• Deposit – LTV (loan-to-value) is a lower amount than that offered for repayment mortgages. This makes the deposit requirement higher. This can vary from lender-to-lender and your personal circumstances may dictate that a 25% deposit is required for a buy to let property. For residential properties, it might be as high as 50%.
• Type of property – Lenders are cautious about lending on nonstandard construction properties. A specialist lender is required if you are looking to buy a timber-frame or listed property.

Repayment plan – This is the one that will most likely influence a lender’s decision regarding interest-only mortgages. This is a vast array of options, and a broker who has experience in this field will be able to help you select the best option for your situation.

Get started online

 

Acceptable repayment options

A reliable repayment plan is essential for an interest-only mortgage application. Lenders may be more accommodating to your other eligibility criteria if they feel that your chosen repayment strategy is sound.

As investment properties are not regulated, there is no requirement for a specific repayment vehicle. However, it is common for landlords to sell the property or borrow money from other properties.

Each lender has different criteria for acceptable repayment vehicles. It is possible for one lender to accept you even if another lender declines you due to your vehicle choice. Some lenders will accept multiple repayment options to go with a single purchase. However, each option might have a minimum acceptable price.

You will need to show evidence in each case of your strategy. This could include any of these options:

The property can be sold

A popular way to repay your loan is to sell the property, especially if you are investing in properties. A homeowner might decide to sell their residential property after a long mortgage term. This could be done by downsizing to an apartment of lower value and then using the equity to repay the original loan. Keep in mind that lenders may require a minimum equity requirement to accept this.

Other assets may be sold

To repay the lump sum, you might consider selling a second property (or alternative) from your portfolio. Alternative high-value assets such as artwork and vehicle fleets may be accepted by lenders.

Investments

There are many investment options that can be considered acceptable repayment vehicles.

• ISA
• Stocks and/or Shares
• Bonds
• Unit trusts
• Endowment policy

Because of their inability to grow in value at the same rate as your loan, endowment policies have become less popular. If you can prove that your projected growth is acceptable, lenders may still allow this type of investment. Because all investments are subjected to fluctuations, lenders will need proof that they can repay the loan balance.

Cash repayments or lump sums for pension

To repay the loan, you could use your personal savings, inheritance or the tax-free lump sum from your pension pot. You may also be able to make lump sum payments on the capital over the term of your mortgage.

Retirement interest-only mortgages

The loan is not subject to a fixed term and will be paid from the proceeds of the sale of the property. It may be possible to remortgage to this product as long as you are still able meet the affordability criteria. Before making any major financial decisions, it is important to seek qualified advice from an expert in the field of later-life lending.

Equity release

An equity release product such as a lifetime mortgage may be suitable for you if you’re 55 years old or older.

Before you take out any equity release, it is important to get the right advice.

Remortgage

There are many remortgage options that you can consider. However, you will need to take into account your age and the maximum term lenders will accept, particularly if you are near the end of your 25-year term. Your circumstances may allow your current lender to extend your mortgage.

Remortgaging to a lender that has a flexible term and age criteria, or to a repayment mortgage is possible. Skipton Building Society offers part- and part-mortgages that combine an interest-only and repayment mortgage. You can reduce the repayments by reducing some of the capital and leaving a lower balance at the end.

Get started online

 

How to obtain an interest-only mortgage

Although it is possible to apply directly for interest-only mortgages, brokers with specialized knowledge in this area are likely to offer the best deals. Some lenders, including larger names like Santander, won’t offer interest-only products directly.

Our whole-of-market broker network has access to all interest-only lenders in the market. This means that no matter if you are looking for a residential or investment home, they can match you with the right lender.

These brokers often have access to interest rates that aren’t available to the general public. It is important to get the best rate possible when choosing this repayment option, because the interest that you owe over the term of your mortgage will not decrease.

Get in touch to arrange for an interest-only specialist contact you for a complimentary, no obligation chat

These mortgages are offered by which lenders?

Many lenders have pulled their interest-only products off the market after the 2008 financial crisis. However, more lenders are offering this type of deal. There are now over 35 of them.

Most lenders have much stricter requirements for interest-only loans. Many require a minimum income as well as equity/deposit requirements. HSBC and Barclays offer this product with no minimum equity requirements.

Get started online

 

What rates should you expect?

In general, interest-only mortgages can be obtained at fixed and variable rates. This is similar to repayment mortgages. Rates cost can vary depending on whether they are fixed or variable, how long the loan is, deposit size and other factors. However, rates for an interest-only £250,000 mortgage that lasts 25 years are typically between 2.5% to 3%.

Match with an interest-only mortgage specialist

You may of got an estimate from a mortgage repayment calculator but you are best enquiring to speak with a mortgage broker today.

No matter your reason for choosing interest-only mortgages, our brokers are experts in the field and can help you find the best deal for your circumstances. They can help you secure the best rates and prepare your application to facilitate a smooth transaction.

We will match you with the best broker for you. Contact us today and we’ll help you get started.

Get started online

 

Calculating an interest only mortgage FAQs

What insurance should I get with an interest-only loan?

Although there are not specific insurance policies to protect interest-only mortgage borrowers (there are none), most homeowners will consider protection policies that can help with mortgage payments in the event they become incapacitated, disabled, or die.

There are many types of policies you should consider.

• Life insurance
• Coverage for critical illness
• Mortgage protection Insurance

These policies come in many forms, with some combining elements from all the above.

Contact us today to get a more precise calculation of interest-only mortgages available to you.

Get started online