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.
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.
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.
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.
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.
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.
Fixed-rate interest-only mortgages are not as common. With a 30-year fixed-rate interest-only loan, you might pay interest only for 10 years, then pay interest plus principal for the remaining 20 years.
👎 Drawbacks of Interest-Only Mortgages
With interest-only, you're only paying to borrow, not own. So, unless the market adds value to your home, you won't be building any equity. If prices drop, you could even end up owing more than your home's worth – a bit like paying rent but with a big bill waiting at the end!
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.
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.
Can a 70-year-old choose between a 15- and a 30-year mortgage? Absolutely. The Equal Credit Opportunity Act's protections extend to your mortgage term. Mortgage lenders can't deny you a specific loan term on the basis of age.
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.
You'll pay interest on a monthly basis during the mortgage term, which might be as short as a few years or more than 20 years. Once your mortgage term is over, you'll still owe the lender the same amount you initially borrowed – so you'll need to either pay it back or remortgage your home.
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.
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.
While an interest-only loan may sound appealing for people looking to keep their payments low, it can be more difficult to get approved and is typically more accessible for people with significant savings, high credit scores and a low debt-to-income ratio.
You pay nothing off the principal during the interest-only period, so the amount borrowed doesn't reduce. Your repayments will increase after the interest-only period, which may not be affordable. The value of an asset such as your house or property, less any money owing on it. .
Cons of Interest-Only Mortgages
Since there's no principal reduction until the amortization period begins, you end up paying more in interest over the life of the loan than you would with a conventional mortgage with the same repayment term.