With mortgage rates on the rise and tightening affordability rules, many homeowners are struggling to remortgage onto a standard repayment deal. Switching to an interest-only mortgage could make your monthly costs more affordable in the short term, while money is tight.
Each month you'll only pay back the interest on your mortgage, you won't pay back any of the original capital you've borrowed. Once your mortgage term is over, you'll still owe the lender the same amount you initially borrowed.
Lower your monthly outgoings
By switching to an interest-only mortgage, you can significantly reduce your monthly costs. This can be a lifesaver if your budget is stretched right now.
Increase your borrowing
Because you'll be paying less each month, your mortgage affordability will be increased. So if you're finding your affordability is short on your mortgage, this could be a solution.
A short term solution to financial strain
You don't need to stay on an interest-only deal for the entire mortgage term. In fact, you can change back to a repayment mortgage whenever you remortgage, as long as you meet the lender's affordability criteria.
You won't be paying back your loan
Because you're only paying back the interest on the loan each month, your mortgage balance won't go down over time. This means you'll need to pay back the mortgage term in full at the end of the term, unless you switch to a repayment mortgage.
You could pay significantly more in interest
The amount of interest you pay is worked out as a percentage of your total mortgage balance. Because your loan size isn't reducing over time, the total interest you'll pay will be greater in comparison to a standard repayment or part and part mortgage.
Fewer mortgage lenders to choose from
Not all lenders offer interest-only mortgages, as some perceive them as higher risk. This means you might not be offered the best rates available across the market.
There are a few reasons why you might want to remortgage. If you’re looking for something more specific, try these pages.
Add a loved one's earnings to yours to boost your affordability, helping you to remortgage onto a new deal.See details
Switch to a new mortgage deal with your current lender through a product transfer.See details
Reduce your monthly costs by switching to a part interest, part repayment mortgage, while still chipping away at your loan.See details
You can be snug in your very own home in 4 simple steps