In this article
Yes, interest-only mortgages are still available, but they’re far less common than they used to be.
Lenders take a much closer look at how you intend to repay the loan, and the criteria are stricter than on a standard repayment mortgage.
These mortgages allow you to pay just the interest each month, without reducing the balance.
That means you’ll still owe the full amount at the end of the term, and the lender needs to be satisfied with your repayment strategy before they’ll approve the application.
Interest-Only Mortgages
Explained in 1 min 27 seconds
Find more videos like this on MoneymanTV
How Repayment Plans Work
The key difference with an interest-only mortgage is that you’re not clearing the loan over time. You’re only covering the interest, so your balance remains the same for the full term.
To be considered, you’ll need to show the lender how you intend to repay the capital later.
This could be through the sale of the property, the sale of another property, a pension lump sum, investments, or in some cases, inheritance.
Each lender has their own view on what they will and won’t accept. If your repayment strategy isn’t clear, credible, or backed up by evidence, the mortgage is unlikely to be approved.
When Interest Only Might Be an Option
Interest-only mortgages are still used in specific situations, but they aren’t available to everyone.
They’re commonly used on buy-to-let properties, where the borrower plans to sell the property at a later date and repay the mortgage from the proceeds.
In these cases, lenders are more focused on the rental income than the borrower’s personal income.
Some older homeowners look at retirement interest-only mortgages, where the balance is repaid when the property is sold, usually after the borrower moves into long-term care or passes away.
These follow a different set of rules and are based on age, property value, and long-term suitability.
In fewer cases, an interest-only mortgage may be used for residential purposes if the borrower has a defined lump sum coming in the future.
That could be from selling another asset or receiving funds that can be documented. These cases are less common and tend to involve stricter affordability checks.
Deposit Requirements and Affordability
If you’re applying for a residential interest-only mortgage, lenders typically require a larger deposit. In many cases, this could be around 50 percent of the property’s value.
A smaller deposit might be considered if your repayment plan is strong and your income supports the risk.
Buy-to-let interest-only mortgages usually require a deposit of at least 25 percent, though the exact amount will depend on the rental income and property type.
If you’re looking at age 50+ mortgages or retirement interest-only options, the deposit requirement will depend on the type of mortgage you’re applying for, the value of your home, and how long you plan to stay in the property.
Understanding the Risks
The most important consideration with an interest-only mortgage is that the full balance will still be outstanding when the term ends.
If your repayment strategy doesn’t work out, you may have to sell the property to repay the loan. That’s why lenders are cautious, and why borrowers need to be realistic.
It’s not enough to have a vague plan. The lender will want to see how and when the loan will be repaid in full, and whether the funds will definitely be there when needed.
This type of mortgage isn’t for everyone, but in the right circumstances, it can be a flexible option. The key is knowing whether it fits your situation now and later.
Speak to an Advisor – It’s Free!
Schedule a free callback from one of our experts today.
- All situations considered
- Transparent and honest mortgage advice
- We search 1000s of purchase and remortgage deals
Our customers rate us 4.9/5
How a Mortgage Broker Can Help
Interest-only mortgages fall into a more specialised category.
Whether you’re considering a buy-to-let property, looking at retirement borrowing, or managing future assets, it’s important to understand how lenders assess these cases.
Our mortgage advisors will take a close look at your plans, review your repayment strategy, and let you know whether interest-only is a realistic route.
If it’s not the right fit, we’ll also help you explore alternative options that give you greater flexibility or peace of mind.
