Yes; offset accounts can be linked to interest only loans. By keeping funds in an offset account, you can benefit from reduced interest expenses while enjoying lower monthly repayments during the interest only period.
Many mortgage lenders will allow you to overpay up to 10% of your mortgage balance each year without penalty, so if you have savings available, you may want to use some of them to pay back your mortgage capital. Switch your interest-only mortgage to a part repayment and part interest-only mortgage.
``Some interest-only mortgages will allow you to make overpayments to reduce the capital part of the loan, usually by arrangement with the lender. ''
How an interest-only works. Most interest-only loans are structured as an adjustable-rate mortgage (ARM) and the ability to make interest-only payments can last up to 10 years.
Interest-only mortgages offer attractive benefits, such as lower monthly payments and increased cash flow for investments. However, they also come with significant risks, including the need for a large lump-sum payment at the end of the term and limited availability.
Can I make extra repayments with an interest-only home loan? Yes. Whether your home loan is on a fixed or variable rate, you can make extra repayments into the loan account.
Offset mortgages can be a tax-efficient way to use your savings. You won't pay any tax on savings income, or use up your Personal Savings Allowance, because you won't be earning interest on your cash – although the savings still generate a return for you by bringing down your mortgage interest payments.
If you want to make principal payments during the interest-only period, you can, but that's not a requirement of the loan. You'll usually see interest-only loans structured as 3/1, 5/1, 7/1, or 10/1 adjustable-rate mortgages (ARMs).
A typical interest only mortgage lasts between five and 25 years. It's possible to remortgage to a new deal at any time, which is often a good idea if interest rates have changed. You can also remortgage at the end of the deal – but you will need to meet affordability criteria.
Like other types of lifetime mortgage, an interest-only lifetime mortgage is a way to release equity from your home to spend as you wish. And you need to meet many of the same requirements, like being at least 55.
Advantages of an interest-only mortgage
Lower monthly payments, as you are only paying back the interest on your loan. Greater control over your investments, meaning you can decide how you save to repay the capital of your mortgage.
Interest-only Offset
With an Offset mortgage, your savings offset the interest you pay on your mortgage. It's simple to manage – one Offset savings account is linked to your Interest-only Offset mortgage. We'll set up your Offset savings account as soon as your mortgage has completed.
Can you pay extra off an interest-only mortgage? If you're thinking about how to pay off an interest-only mortgage, it's worth noting that many interest-only mortgages allow you to make overpayments on your loan. This can be done as a lump sum or through increased monthly instalments.
With an interest-only home loan, you can keep the original debt separate. You can then put savings into an offset account against any debt that's not tax deductible.
Yes. One of the biggest advantages of offset mortgages is that you can still access your savings if you need to. But, don't forget, if you withdraw your savings, it will reduce the amount you can offset against your mortgage. This means your monthly payments will go up.
Yes, you can offset 100% of your mortgage. This means that if your offset account balance matches your loan balance, you effectively pay no interest. However, your regular loan repayments will continue and go entirely towards paying down the loan's principal.
Overpayments on interest only parts of your mortgage won't automatically reduce your monthly mortgage payment, unless you ask us to, but could save you money by reducing the amount of interest charged.
Pros. Lower repayments during the interest-only period could help you save more or pay off other more expensive debts. Short-term finance that covers the period between buying a new property and selling your existing property. A type of home loan for people who are building their own home.
Arranging your mortgage on interest-only will not necessarily mean you will be able to borrow more. However, in certain circumstances this may be possible. To see what you may be able to borrow use our affordability calculator. Alternatively speak to one of our experienced advisors.
The minimum term is normally five years, so if you took it at 60 you could go up to the age of 65. There are also interest-only mortgages specifically targeted at borrowers aged 55 or over. These are called Retirement Interest Only or RIO mortgages. Lifetime mortgages or equity release could all be an option.
Cons of interest-only loans
Higher interest rates: Interest-only loans typically come with higher interest rates compared to fully amortizing mortgages. Lenders consider these loans riskier due to the lack of principal reduction during the interest-only period.
After the interest-only period, you have the option to refinance, pay a lump sum, or begin paying down the principal. However, it's important to note that your monthly payments will increase significantly once you start paying both the principal and the interest.