A repayment mortgage for a residential property purchase is the most common form of borrowing against a property. It is the most sensible way to repay your mortgage and as long as you continue to make your mortgage payments, at the end of the agreed term, your mortgage debt will be nil.
Lenders have very strict criteria with interest-only mortgages. Some of the things they look for are that there is an acceptable source of funds to repay the capital at the end of the mortgage. A minimum £150,000 equity in the property is required for some lenders, and where any part of the mortgage is on an interest only basis, the maximum loan you will be able to borrow is 75%. It is also important to ensure that a repayment vehicle is in place to ensure funds will be available to repay the mortgage when the term expires.
Most lenders do not offer interest-only mortgages at all for residential purchases, but one instance where interest-only is acceptable is on a buy-to-let property, which cannot be your main residence, and which is in essence, an investment. The downside of this, of course, is that unless you sell the property, the actual mortgage will never be repaid. Repayment mortgages are also available for buy-to-let mortgages.
To summarise, it is almost always best to affect a repayment mortgage rather than interest-only for a residential property. For buy-to-let, it depends on a lot of factors such as affordability, tax implications and time frame for keeping the property.
As independent mortgage advisers, ESPC Mortgages can help with all aspects of understanding your budget, applying for a mortgage and dealing with the relevant insurance requirements. Pop in for a no obligation chat with the team at our Edinburgh Showroom or give them a call on 0131 253 2920.
The information contained in this article is provided in good faith. Whilst every care has been taken in the preparation of the information, no responsibility is accepted for any errors which, despite our precautions, it may contain.
The initial consultation with an adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £350 (£295 for first-time buyers). YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.