Interest Only
An interest-only mortgage is a type of home loan where borrowers are required to make monthly payments that cover only the interest charged by the lender. Unlike the capital and interest repayment mortgage, the interest-only method does not contribute towards reducing the original loan amount (capital). As a result, at the end of the mortgage term, borrowers still need to repay the full amount borrowed.
At Austin Friars Financial, we offer interest-only mortgages to our clients who meet certain criteria and have a suitable repayment plan, known as a "repayment vehicle," in place. The repayment vehicle is a crucial aspect of an interest-only mortgage, as it ensures borrowers have the means to repay the capital when the mortgage term ends.
Acceptable repayment vehicles can include:
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Individual Savings Accounts (ISAs): ISAs provide a tax-efficient way to save and invest money over time, potentially accumulating sufficient funds to repay the mortgage capital.
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Personal Pensions: Some borrowers may opt to use their personal pension savings as a repayment vehicle, especially if they have substantial pension funds.
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Investment Funds: Investment funds or other types of investments can be considered as a means to build up a lump sum to repay the mortgage.
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Sale of Property: Some borrowers may plan to sell the property at the end of the mortgage term to repay the capital, provided the property's value has appreciated sufficiently.
It's essential for borrowers considering an interest-only mortgage to demonstrate to the lender that they have a viable and robust repayment strategy in place. Austin Friars Financial's experienced mortgage advisors can guide clients through this process, ensuring they understand the risks and responsibilities associated with interest-only mortgages.
A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.