A question we get asked a lot is, what is an interest-only mortgage?
Who opts for an interest-only mortgage?
What are the advantages of an interest-only mortgage?
Here at LTC Mortgages, we’ve compiled a list of common questions surrounding interest-only mortgages (IOM) to help lift the confusion.
What is an Interest-Only Mortgage (IOM)?
There are 2 elements to a mortgage, the capital sum you borrow & the interest.
With an interest-only mortgage, you only pay the interest each month, but not the capital.
When the mortgage ends, you need to repay the capital balance as a lump sum by selling the property, remortgaging or using savings.
Who opts for an IOM?
Interest-only mortgages are popular with investors who purchase buy-to-let properties.
Cheaper monthly payments ensure increased cash flow, making it easier for landlords to enhance or expand their property portfolio.
Particularly in the South of the UK, where property prices are much higher, some people opt for interest only due to affordability.
You may be able switch to a repayment mortgage in the future with your current lender or by remortgaging with a different lender.
Advantages of an IOM
Often the property sells for more than it was purchased for, meaning you’ll be in profit after repaying the capital sum.
In terms of landlords, lower monthly payments can also help with any rental voids.
Could free up money to enable multiple buy-to-let investments.
Want to discuss further?
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We’ll help guide you and find the best solution tailored specifically to you and your needs.
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Your property may be repossessed if you don’t keep up with your repayments on your mortgage.