Interest Only mortgages

Why Interest-Only?

Many clients who borrow from Hampden & Co do so on an interest-only basis. These are mortgages where as a client you only pay the interest every month, and then repay the “capital” – the sum borrowed – at the end of the term.

We offer interest-only mortgages both for those who are buying or re-financing their main home, and also for those who are buying or re-financing ‘Buy to Let’ investment properties, either for long-term or short-term / holiday lets.

Interest-only mortgages are not as common as they once were, in part because the benefits and considerations around them are not as well understood as they could be. We have put some thoughts on these benefits and considerations below, but clearly every situation is unique, so if you are not sure whether an interest-only mortgage might be right for you, then please do get in touch, and one of our bankers will help you decide.

Benefits of interest-only mortgages

  • Lower monthly costs: Because you are only paying the interest, and not the sum that has been borrowed, this clearly leads to lower monthly costs. This is attractive to many, including, for example, those who are looking to take income from an investment property, which they intend to sell in the future
  • Lump sum repayments: For those who are looking to pay the mortgage off using irregular payments such as bonuses or fluctuating income, the lower monthly commitments of interest-only allow for greater flexibility

For those borrowing on a Fixed-rate, you can make overpayments to the loan at any time subject to an Early Repayment Charge. Currently, during the period when the Early Repayment Charge applies, you can make overpayments up to 10% of the outstanding balance during each 12 months after drawdown (the 10% is based on the original balance in the first year of your mortgage and the outstanding balance at each anniversary of the mortgage thereafter). The Early Repayment Charge will only apply above this limit. This 10% limit can be changed or withdrawn.

Key considerations when taking out an interest-only mortgage

There are two main areas that clients need to consider when deciding if an interest-only mortgage is right for them, and the property they are looking to buy or re-finance:

  • A clear repayment plan: It goes without saying that clients need to have a clear and practical way that they intend to pay off the mortgage at the end of the term. There are many ways that clients can achieve this, which can include having separate savings or investments, but could also consist of the intention to downsize, the sale of other assets or the sale of the house itself where the property has been an investment
  • Making the payments: Even with lower monthly payments, some clients are looking to borrow significant sums, and we need to ensure that the interest payments will not cause them any difficulty, for example would they still be comfortable if interest rates were to rise?
George Grierson

Our bankers will discuss the above benefits and considerations with every client, along with an understanding of what proportion of the value of the property they are looking to borrow. This helps to ensure that they get a mortgage that is right for them, and their individual circumstances.

George Grierson, one of our Banking Directors, has helped many clients arrange mortgages on an interest-only basis he comments "Interest-only mortgages are not right for every situation, but they are very attractive to many. The combination of lower monthly payments and the flexibility of being able to repay capital when it is convenient to the client, has obvious appeal."

If you would like to discuss any needs you may have for an interest-only mortgage, then please do get in touch, and we can see how we can best help you.

All borrowing is subject to status and is available to persons of 18 or over. Security might be required for borrowing in the form of a charge or standard security over land, or other forms of security over your investments or other assets. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

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