What is an Interest Only Remortgage?

When lenders calculate your montly mortgage payment they factor in two things, interest and principal. Your principal amount is the sum which goes towards paying down the amount of money you borrowed on your home. The interest sum is the amount of interest that has been accumulated. For example, if you borrowed £100,000 at 4.7%, your monthly payment may be £589/mo., where £391 goes to the lender for interest accumulated and £197 goes towards paying off your £100,000 mortgage. In an interest only remortgage deal, you only pay the interest portion, which will lower your montly payment by £197.

Is an Interest Only Remortgage Right For Me?

The main disadvantage of an interest only remortgage is that you will never pay off your mortgage if you only make interest-only payments. To many, this is simply a ludacris concept, but for the short term and very young borrowers, this may be a suitable mortgage deal. For young borrowers or first time borrowers who are not well adjusted to making a monthly mortgage payment, an interest only mortgage can be a great way to start. Once they are comfortable making an interest only payment, they can remortgage into a fully amortized payment. For borrowers who are having difficulties making their current payment and need some short term relief to get back on their feet, this is also a great deal.

It can also be a great deal for people who want to make one lump sum principal payment at year end, provided they get a mortgage deal that does not penalize them for paying off principal. It is extremely popular amoung people who recieve large year end bonus. Just bear in mind, that at one point your principal loan amount needs to be paid off and the longer you delay it, the more interest you pay.

Although we discourage this type of mortgage deal for the long term, this mortgage deal can be suitable for long term borrowers if home values are on the rise or during periods of high inflation.

Alternatives to Interest Only Remortgages?

If you are in need of an interest only remortgage because 1)You are having difficulties making your current mortgage payment or 2)Have variable income streams and require more flexibilty in your mortgage payment, then there are alternatives that may be more suitable to your circumstance. Flexibles remortgage and discount remortgages will give you short term relief to help you get through tough times. Flexible remortgages are usually the best remortgage deal for people with variable income streams, because they give more control over your mortgage payment. If you are looking for the lowest short term mortgage payment, then a flexible remortgage deal is the deal right for you.