If you have an Interest Only mortgage, your monthly payments have been paying the interest but have not reduced your loan balance (unless you have been making overpayments to purposely reduce the balance of your mortgage). This means that at the end of your agreed mortgage term, you need to repay your loan in full.
You have the option of making principal payments during your interest-only payment term, but once the interest-only period ends, both interest and principal payments are required. Keep in mind that the amount of time you have for repaying the principal is shorter than your overall loan term.
Obtaining an interest-only remortgage is no different to making a standard remortgage application, though the applicant must prove they have a repayment plan to repay the capital and many lenders will restrict the loan to 75% LTV.
Possible term lengths
Interest-only mortgages usually range between 5 and 25 years. However, like conventional mortgages, you may find lenders that are happy to go to 30 years. Some may even consider stretching to 35-40 years.
Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. By paying more principal each month, you incrementally lower the principal balance and interest charged on it.
The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments. The extra payments will allow you to pay off your remaining loan balance 3 years earlier.
Yes. If your interest-only mortgage term is coming to an end and you need funds to pay off the outstanding balance, you can release equity from your home for repayment. To be a workable solution, you will need to have enough equity in your home to repay your initial interest only mortgage.
The main reason people choose interest-only mortgages is to reduce the amount they have to pay out every month. If you can afford the monthly payments on a repayment mortgage, that is usually the better choice. Is interest-only best for buy-to-let? You will pay lower monthly repayments with an interest-only mortgage.
Generally, national banks will allow you to pay additional funds towards the principal balance of your loan. However, you should review your loan agreement or contact your bank to find out their specific process for doing so.
So, for this example you would type =PMT(. 05/12,60,200000). The formula will return $3,774. That's the monthly payment you need to make if you want to pay off your home mortgage of $200,000 at 5% over five years.
In this scenario, an extra principal payment of $100 per month can shorten your mortgage term by nearly 5 years, saving over $25,000 in interest payments. If you're able to make $200 in extra principal payments each month, you could shorten your mortgage term by eight years and save over $43,000 in interest.
Okay, you probably already know that every dollar you add to your mortgage payment puts a bigger dent in your principal balance. And that means if you add just one extra payment per year, you'll knock years off the term of your mortgage—not to mention interest savings!
The amount saved will vary based on the initial size of the loan and interest rate. Simply by making an additional payment over the life of a 15-year mortgage for $300,000 dollars at an interest rate of 5%, amounts to an eventual savings of up to 200 dollars monthly.
Regardless of the amount of funds applied towards the principal, paying extra installments towards your loan makes an enormous difference in the amount of interest paid over the life of the loan. Additionally, the term of the mortgage can be drastically reduced by making extra payments or a lump sum.
Throwing in an extra $500 or $1,000 every month won't necessarily help you pay off your mortgage more quickly. Unless you specify that the additional money you're paying is meant to be applied to your principal balance, the lender may use it to pay down interest for the next scheduled payment.
In total, 63 per cent of available mortgage deals now allow for an interest-only option.
While there's no minimum age requirement, retirement interest-only mortgages are generally aimed at older borrowers, such as the over 55s, over 60s and pensioners who might find them easier to qualify for than a typical interest-only mortgage.