Residential & specialist
Lower monthly payments require a credible plan for the capital
With an interest-only mortgage, the regular payment covers mortgage interest but does not normally reduce the amount borrowed. The full capital balance remains due at the end of the term. This can provide flexibility for the right borrower, but only where there is a credible, lender-acceptable repayment strategy.
We will assess your complete circumstances, explain the available routes and recommend a mortgage that supports your wider plans. Your initial conversation is without obligation.
Interest-only compared with repayment
On a repayment mortgage, each contractual payment includes interest and part of the capital. On an interest-only mortgage, the capital generally remains unchanged unless you make overpayments. A £500,000 interest-only mortgage will therefore still require £500,000 to be repaid at the end of the term, regardless of how much interest has been paid.
Who this may help
Interest-only may be considered by borrowers with substantial equity, investments, other properties, predictable future liquidity or a clear plan to downsize. It is also common in buy-to-let lending. For residential borrowing, income, minimum equity, age and acceptable repayment strategies can be more restrictive than for a repayment mortgage.
What needs to be considered
- The repayment strategy and evidence required by the lender
- Whether the strategy is expected to repay the full balance
- Minimum income, equity and property-value requirements
- The effect of investment or property values falling
- Age at the end of the term and the practicality of a future sale
- Whether part repayment and part interest-only offers a better balance
- Overpayment allowances and early repayment charges
- Ongoing reviews of the repayment plan
How ERG Finance approaches it
We begin with the end of the mortgage: how and when will the capital be repaid? We then compare full interest-only, part-and-part and repayment options, considering monthly cost, total interest, flexibility and risk. We do not treat a lower monthly payment as a complete strategy.
Common repayment strategies
Depending on the lender, acceptable strategies may include sale of the mortgaged home, sale of another UK property, investments, endowments, pension lump sums or other clearly evidenced assets. Cash bonuses, inheritance expectations, house-price growth and future earnings are not accepted by every lender and may not be reliable enough on their own.
Our role
- understand the purpose of the mortgage and the outcome you need
- check affordability, lender criteria and property requirements before recommending a route
- compare the rate, fees, flexibility, early repayment charges and overall cost
- prepare the application and evidence so the lender sees a complete and accurate case
- manage the mortgage process through valuation, offer and completion
Frequently Asked Questions
-
The contractual monthly payment is normally lower because it does not include capital repayment. However, the capital remains outstanding and total interest may be higher over the term.
-
Some lenders accept this where there is sufficient equity and the proposed sale or downsizing plan is credible. Minimum property values, equity and age restrictions may apply.
-
Part of the loan is repaid on a capital-and-interest basis and the remainder is interest-only. It can reduce monthly payments while also reducing some of the balance over time.
-
Possibly, but this requires lender approval, a fresh affordability assessment and an acceptable repayment strategy. It is not simply an administrative change.
-
Many mortgages allow overpayments within stated limits. This can reduce the interest-only balance, but product-specific early repayment charges must be checked.
-
You may need to sell assets or the property, refinance if eligible, or find other funds. There is no guarantee that another mortgage will be available at the end of the term.
Speak to an advisor
Book a consultation
Check out our availability and book the date and time that works for you.
Select a Date and Time
Time zone: United Kingdom (Europe/London)
Your consultation
A 30-minute telephone call with one of our advisers. Tell us a little about your situation and we’ll match you with the right person.
Select a date to see availability
Booking Form
Your consultation is booked.
A confirmation will follow by email. Need to make a change? Call +44(0) 1743 668 202.
This booking was taken in test mode and has not reached our diary. Please call 01743 668 202 to confirm your appointment.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. The availability and terms of any mortgage depend on individual circumstances, lender criteria, affordability, credit assessment and valuation.