Anyone can apply for an interest-only mortgage. It could be harder to get accepted for one than a repayment mortgage. This is because lenders will need to see evidence that you’ll be able to afford the lump sum to pay off the mortgage at the end of the term.
If you’re a high earner or have a big chunk of savings, you stand a better chance of being accepted for an interest-only mortgage.
If you have a big deposit, it might mean you are more likely to be accepted for an interest-only mortgage.
Repaying an interest-only mortgage
You will pay the interest off every month. At the end of the term, it’s time to pay back the money you’ve borrowed to buy your home.
You should consider how you will do this. These so-called ‘repayment vehicles’ include:
Savings. While paying back your interest-only mortgage, you could save towards the final lump sum payment through ISAs or other types of savings account.
Stocks and shares. You could build up your final payment through long-term investment in Stocks and Shares ISAs.
Other assets and properties. If you own property, you could use the money from selling it to pay off your mortgage.
Pensions. You could repay what you owe by withdrawing from one or more pensions at the end of the term.
You’ll need to show your lender that you have one or more of these options in your back pocket to pay off the balance at the end of the mortgage before you’re accepted for one in the first place.
Revisit your plan regularly to make sure it’s still realistic. If things change, then it’s best to get in touch with your lender to discuss your situation.
You may be able to switch to a different mortgage, like a repayment or part-repayment deal. However, your monthly repayments will go up, so you should make sure you can afford the increase.
The content on this page is for reference and does not constitute financial advice. For impartial financial advice, we recommend government bodies like MoneyHelper.