Repaying your mortgage
Like any loan, with a mortgage you have to repay the capital (the amount you’re borrowing) and the interest on the outstanding capital until it's repaid.
Repayment options
Repayment
Interest-only
Part repayment only & part interest-only
Repayment
When you have a repayment mortgage, the monthly payment you make gradually pays off both the amount you borrowed (the capital) as well as the interest on the loan. As long as you make all your monthly payments when they’re due, the loan amount is guaranteed to be fully repaid at the end of the term.
Interest-only
If you choose to conduct any part of your mortgage on an interest-only basis, the monthly payments you make only cover the interest on the loan. It is a requirement that you have a repayment plan in place when you apply for any interest-only lending. This type of mortgage does not pay back any of the money you have borrowed, called 'capital' during the mortgage term.
As long as you’ve made all your monthly interest payments, the amount you owe at the end of the mortgage term will be the same as the amount you borrowed. To repay the capital you need a lump sum at the end of this term. It is your responsibility to make sure you have a plan in place that helps you repay this amount.
An interest-only mortgage is a higher risk than a repayment mortgage. In most cases, there is no guarantee that you will be in a position to fully repay the capital amount you owe at the end of the term.
Important Notes
We do not provide advice on repayment plan(s) or make any guarantees that your plan(s) will be sufficient to repay the outstanding balance (capital) at the end of the mortgage term.
You should review your plan(s) regularly during the term of your mortgage to make sure it is on track to repay the outstanding balance.
Periodically, we will ask you to provide evidence of your repayment plan(s). If you are unable to satisfy us that your repayment plan(s) remains on track to repay the outstanding balance on your mortgage, we may ask you to transfer some or all of your mortgage onto a repayment basis.
Please remember it is your responsibility to ensure you have sufficient funds to repay your outstanding balance at the end of the mortgage term. If you are unable to do so, your home may be repossessed to repay the outstanding balance.
Our Requirements
Our requirements for various transactions are detailed below. Only when our requirements have been met will we be able to complete the transaction.
When you request a new mortgage or additional borrowing on an interest-only basis you will need to provide us with evidence of your repayment plan(s) from the table below. We will make an assessment of whether the repayment plan(s) meets our requirements. This includes checking to see whether it has a reasonable prospect of repaying the amount you borrow on an interest-only basis.
If any of your existing debt is on an interest-only basis and you require either additional borrowing or wish to switch to a new deal we will need signed confirmation from all parties to the mortgage that you have a repayment plan(s) in place to repay the existing borrowing at the end of the term. This is still necessary if your additional borrowing is to be conducted on a repayment basis.
If you request to convert your existing mortgage account to an interest-only basis or to increase the proportion of interest-only lending you will have to provide evidence of a suitable repayment plan(s) from the table below.
Where any part of the mortgage is currently on an interest-only basis, you will be required to provide evidence of the repayment plan(s) intended to repay this part of the debt, before any further interest-only conversion can take place.
If the repayment plan you originally intended to use is no longer on our acceptable list (see below) we will require signed confirmation of this from all parties to the mortgage. The repayment plan(s) you intend to use to support your increased interest-only borrowing must be on our list of accepted repayment plans, see below.
The table below details the plans we accept for new interest-only borrowing and the method we use to help us make this assessment.
| Repayment plan | Information required | Assessment method | |
|---|---|---|---|
| Endowment policies (UK) | Copy of latest projection statement dated within last 12 months | Endowment companies will present three growth rates to a customer with the middle one being the most likely projected outcome. We allow up to 100% of projected amount using the middle % figure. | |
| Investment Backed (UK) | Stocks and shares ISA (UK) | Copy of latest statement dated within last 12 months |
We will compare the value of the ISA/OEIC/Investment Bond with the amount of interest-only borrowing required, taking into account the remaining term of the mortgage and future market volatility. The method of determining the level of investment required at the outset of the loan is: Loan amount x 120% Term of loan (in years) |
| Unit trusts/Open Ended Investment Companies (UK) | |||
| Investment bonds (UK) | Verification will be taken from an investment statement dated within the past 12 months | ||
| Pension (UK) | Copy of latest projection statement dated within last 12 months | For the purposes of backing an interest-only mortgage, a maximum of 25% of the projected total fund value can be used. Or If a company only provides a current fund value then 25% of the current fund value must be equal to or more than the following calculation: Loan amount x 120% Term of loan (in years) |
|
| Stocks and Shares (UK) | Copy of share certificates, nominee account statement or confirmation from a recognised stock broker containing evidence of share holdings together with their valuation | See Investment Backed - Stocks & Shares ISA. | |
| Savings (UK) | Copy of passbook/statement for savings accounts showing balance within last 12 months | We will compare the value of the savings with the amount of interest-only borrowing required, taking into account the remaining term of the mortgage. The method of determining the level of investment required at the outset of the loan is: Loan amount Term of loan (in years) OR Current balance to cover interest-only amount in full. |
|
| Sale of second home (UK) | Property details, confirmation of ownership, evidence of amount of any mortgage debt | We will check the ownership of the second property and assess its value. We will compare the equity available in the property with the amount of iInterest-only lending required. Loans with term of 10 years or less, equity at inception should cover 100% of interest-only lending. Loans over 10 years term equity at inception should cover 75% of interest-only lending. Any outstanding mortgage will be deducted from the value. In some circumstances, you may need to pay for your own valuation. |
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Note: Repayment plans CANNOT be accepted if they include the name of anyone NOT named on the mortgage.
As with any investment, there is a risk and we strongly recommend you take independent financial advice.
Part interest-only
You might have split your mortgage between repayment and interest-only (this will be shown clearly on your annual mortgage statement). This means that at the end of the term, the amount of the mortgage being paid on an interest-only basis will need to be repaid by a lump sum – so you need to make sure you have a plan in place to repay this amount.
