Although not as common as they once were, the Interest Only mortgage is still an option for some people looking to fund a home. In the ’90s and early noughties, these were quickly sold to people. However, they are now one of the more difficult mortgages to gain. There are many reasons why this is. It helps to be ahead of the game when it comes to house purchases and the requirements for mortgages, and Conveyancing news from Sam Conveyancing is one of the best ways to do that.
The Interest-Only mortgage is relatively simple to understand. Like any other financing, you apply for the mortgage and will be taken through a variety of affordability tests. The main difference to a repayment mortgage is that you only pay the interest on the loan you have secured monthly. This is significantly reduced from a repayment mortgage monthly amount. However, the amount you initially borrowed never decreases. This means that you still owe exactly what you borrowed in the first place at the end of the term. So, for example, if you borrow £250,000 and make 20 years of interest payments, you will still owe the lender £250,000 at the end of the 20 years.
The lenders will ask what “vehicle” would be used to repay this debt at the end of the term. For the most part, “I will sell the property” was used in the past, or “I will switch to repayment at a later date” (when the number of years left meant the monthly payment was now costly). These are no longer considered robust enough, and lenders now demand considerably more evidence of a solid plan to produce the money.