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What is an interest only mortgage?

As part of our specialist mortgage products, Simple Fast Mortgage provides advice for customers considering an interest free mortgage for their residential or commercial property purchase. An interest only mortgage is a type of mortgage where the borrower pays just the interest on the mortgage for the duration of the term.

During this time the customer makes monthly payments that cover the interest charged on the mortgage but the original balance borrowed does not reduce. At the end of the term, the borrower will then need to repay the original balance.


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How does an interest only mortgage work?

When you take out an interest only mortgage, you will need to make monthly payments to cover the interest that’s charged each month. Then at the end of the term, you will need to repay the original loan that you took out on the property. The monthly interest payments are calculated based on the interest rate of the chosen mortgage product, and the borrower can choose from a fixed or variable rate depending on their individual circumstances. 


It’s worth noting that interest only mortgages aren’t suitable for all customers so you’ll need to meet the lender’s interest only mortgage criteria to be eligible. Eligibility for an interest only mortgage will vary between lenders, and typical considerations include: 

  • Annual income
  • Any current commitments 
  • Any assets you have
  • Your plans for the repayment of the mortgage 

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How much can I borrow on an interest only mortgage?

Similar to repayment mortgages, you can usually borrow between 4.5 to 5.5 times your income depending on your personal circumstances and the lender’s affordability criteria and calculations. Whilst payments on interest only mortgages will be lower than their repayment counterparts, the lender might still want to ensure that you can repay the mortgage on a capital and interest basis if required should your alternative repayment vehicle fail.  


In some circumstances, such as retirement, you may be able to borrow more if your repayment vehicle is the sale of the property in the future. Lenders will also look at the size of your deposit, your income, credit history and property details when assessing how much they will lend you.


High earners and those with significant bonus payments, stock or share options may also be able to borrow a higher amount. Check out our page on High Net Worth Mortgages for more information.

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Benefits of an interest only mortgage

While interest-only mortgages may not be suitable for everyone, there are several benefits to this type of mortgage over a repayment mortgage. Some of the benefits include:


  1. Your monthly mortgage payments are lower – because you are only paying only the interest on the mortgage your monthly payments are significantly lower than they would be on a capital repayment mortgage. This is a great option for those who want to make lower payments for the short term and have an alternative method to repay the capital.
  2. Increased flexibility – as your payments are lower this can be helpful for borrowers who have irregular income or those who intend to use the property as a buy to let investment. 
  3. More investment opportunities – getting an Interest only mortgage also means that borrowers don’t have to tie up so much of their capital and this can leave them free to invest in other schemes, some of which could make them more money.

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Residential and commercial interest only mortgages

Interest only mortgages are available to both the residential market and for those who are looking to buy property as an investment whether that’s a buy-to-let or if you are looking to buy premises for your business.

Commercial Interest Only mortgages

Commercial interest only mortgages are suitable for investment properties which will be used by businesses – such as an office or retail unit, a garage or warehouse. The loan is secured against the property by the lender and can be used either to purchase the property or to raise capital for reasons such as refurbishment, purchase of equipment or debt consolidation. Loans usually need to be for a minimum of £25,000 and are available through both high street and specialist mortgage lenders which our advisors have access to. Check out our dedicated page on commercial mortgages for more information.

Why choose Simple Fast Mortgage for expert advice on interest only mortgages?

  1. We have over 20 years experience working with interest only mortgages: With more than two decades of experience working with investors and businesses we are ideally placed to find the right solution for your situation.
  2. Market-wide advice: Our team has access to a wide range of mortgages from lenders across the market. We keep our ear to the ground so we are aware of the latest interest only products, the lenders that offer them and the interest rates available. 
  3. Access to specialist lenders: Some situations are more specialist in their nature and a specialist lender could offer an interest only solution where others can’t. We have access to a wide range of specialist lenders and know how to present your case for the best chance of approval
  4. No obligation advice for interest only mortgages: We offer no-obligation advice and we will evaluate the different repayment options to advise whether an interest only mortgage is the right option for you.


Need advice on some of our other specialist mortgage products? Speak to our friendly team of experts today to learn more about high-net-worth-mortgages, and self employed mortgages.



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