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.
What is the longest term for an interest-only mortgage? The longest term available for an interest-only mortgage depends on the provider. Generally, terms are shorter than on a capital repayment basis, typically 25 years. Lenders may also require a maximum age, typically 70 years.
Let's say you take out a 30-year interest-only mortgage with an initial 5-year interest-only period. Your principal payments would be amortized over the remaining 25 years of the loan term, rather than all 30 years. In essence, you're pushing the bulk of your mortgage payments to the back end of the deal.
Important things to consider
There are limits to how long you can have interest only periods – the maximum interest only period at any one time is five years for owner occupiers and 10 years for investors (credit criteria applies). Interest only is not available in the last five years of your loan.
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.
Can I get an interest only mortgage? Interest only mortgages are available for home buyers, although they're not as common as repayment mortgages. To get one, you'll need a plan in place to repay what you owe when the mortgage ends. As with any other mortgage, whether you're approved is at the lender's discretion.
This is because, in effect, you're only paying the interest charges on your mortgage loan. If someone has a short term need to preserve money, they could choose this, retain the mortgage and property and just service their interest-only loan before switching back to a repayment mortgage.
If you can demonstrate an ability to repay the loan before you're 75 years old, they will consider your application no matter your age! For example, if you needed to borrow $300,000 and were 50 years old, the standard 30-year mortgage term could be reduced to 25 years and your loan would be approved.
Qualifying for an interest-only mortgage loan typically requires a good to excellent credit score, a low debt-to-income ratio, and a significant down payment. Lenders may also require proof of substantial assets or savings.
For Interest Only lending the property must have a minimum equity of £250,000 at the time of application for non-London properties and £300,000 for properties located in London. For Part Interest Only & Part Repayment lending the minimum equity requirements are calculated at the end of the mortgage term.
The bank won't give you an interest only loan forever. Generally, the bank will approve an interest only mortgage for up to 5 years. So once you get to the end of your interest only period, you need to apply for another interest only period. But each bank has different policies.
There are several different ways they could extend your mortgage, including: turning all or part of it into a repayment mortgage, with a later agreed full repayment date. letting you repay it with several agreed payments rather than just one lump sum.
However, it would be wise to be mindful that: Interest-only repayments are available for a set period over the life of the loan. Up to 5 years on an Owner-occupied loan and 10 years on an Investment loan.
It is possible to switch your mortgage to an interest-only basis if you have sufficient equity in your property, an acceptable repayment plan and meet the lender's income requirements.
We offer a range of products for customers looking to borrow up to 75% of the value of the property (loan to value or LTV). If you're looking to borrow up to 60% LTV, your whole mortgage can be interest only. Or you can take a Part & Part approach with any combination of your choice.
Age doesn't matter. Counterintuitive as it may sound, your loan application for a mortgage to be repaid over 30 years looks the same to lenders whether you are 90 years old or 40.
Generally, a creditor such as a lender cannot use your age to make credit decisions. However, there are exceptions to this rule. For example, age can be considered in a valid credit scoring system but it can't disfavor applicants 62 years old or older.
When you're in your 50s, buying a house might cut into your retirement savings significantly, if it pushes your living costs up much higher. Maximizing your retirement contributions may ultimately net you more money than the cash you'd save by paying off a mortgage in the 15 or 20 years before you retire.
Some cons with this type of loan include: You're not building equity in the home: Building equity is important if you want your home to increase in value. With an interest-only loan, you aren't building equity on your home until you begin making payments towards the principal.
Set your strategy before you choose
If you intend to invest and sell before the loan term ends, interest-only might be useful for you. On the other hand, if you're buying a family home for the long term, principal-and-interest repayments might serve you better.
In contrast, with an interest-only mortgage, your overpayment will typically only be used to reduce future interest payments or the overall interest you pay. So, while it could still be a good idea to save some money, overpaying won't usually increase the equity you hold in your property.
You can switch between Principal and Interest repayment and Interest Only payment options during the life of your loan. However, there are limits for how long you can have Interest Only periods. These limits apply when you request a new or extended Interest Only payment.
A lifetime mortgage is a loan secured against the value of your home. You retain ownership, can still live in the property, and it doesn't need to be repaid until you die or move into long-term care.
Typically, lenders offer up to 75% of the property's value for an interest-only mortgage. This means that you'll need a deposit of at least 25%. As interest-only mortgages pose more of a risk for lenders than repayment mortgages, many lenders ask for a much higher deposit, such as 40% or 50%.