Interest-only mortgage
Your monthly payment pays only the interest charges on your loan – you don't pay off any of the loan amount (see Figure 2). This means your monthly payments will be less than if you had a repayment mortgage. However, the total cost of an interest-only mortgage will be higher because you'll be paying interest on the full loan amount throughout the mortgage term.
With an interest-only mortgage, you'll need to know from the start how you're going to find a lump sum to repay the loan at the end of the mortgage term. When you apply, we'll ask you to show us solid plans that should provide enough money to repay everything you owe by the end of the mortgage term.
From time to time, we will ask you to show us that your repayment plan(s) remains on track to pay off everything you owe by the end of your mortgage term, and you must show us if we ask you. It’s important that you keep checking that your arrangements are still on track.
If we think your plan may not be enough to repay everything you owe at the end of the term, we may contact you to discuss your plan and what can be done to put it right. For example you could consider transferring part, or all, of your loan onto a repayment mortgage.
It’s your responsibility to make sure you have enough money to repay everything you owe at the end of your mortgage term. If your plan does not give you enough money to repay everything you owe at the end of the term, you may have to sell your property.
Interest-only mortgages are only available when the loan amount is less than 75% of our latest valuation of the property.