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Interest only mortgage rates

Where can I find the best interest only mortgage rates? Find out here.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 23rd August 2019 *

How to get the best interest only and LTV (loan to value) rates

We get lots of enquiries about this topic every day, primarily, how can you get the lowest interest only mortgage rates?

The good news is it’s possible to find low rates for both mortgage rates that are interest only and favourable loan to value (LTV) ratios too. You can find them by speaking to one of the expert brokers we work with who can determine your eligibility and recommend a lender that’s best suited to you.

In this article we’ll cover the following topics:

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How can you find the best interest only mortgages?

First things first, talk to one of the specialist brokers we work with who’ll be able to navigate the best interest only fixed rate mortgages for you. We can help you find a broker from the list of experts that we work with - just make an enquiry and we’ll put you in touch.

What is the best way to carry out an interest only mortgage comparison?

Your broker will take all your personal circumstances into account to confirm your eligibility criteria and then undertake an interest only mortgage comparison.

They will look for the best interest only mortgage deals and the cheapest interest only mortgages and make recommendations to you.

If you’re keen to find the best interest only mortgage then you can prepare by having as large a deposit as you can: as the bigger your deposit, the better the deals you’ll be offered.

How can you secure the best interest only mortgage rates?

Most importantly you’ll need to show your lender that you’re a low risk client who won’t have problems making repayments.

By having a good deposit it proves that you’re financially responsible. An ideal deposit is around 25% though of course, the more deposit you have, the better the deal you’ll be able to secure.

Bear in mind that there are other factors a lender will consider before they decide on the rate they offer you, including your wider personal circumstances, credit history, age and general eligibility criteria, explained in the eligibility section of this article.

What types of interest only mortgage are there and how do the interest payments differ?

There are several types of IO mortgages and the interest you will pay can vary depending on the type of product you take out.

Interest only adjustable mortgage

An adjustable interest only mortgage is a product which allows you to choose to only pay back the interest your mortgage accrues, and normally you’ll pay this back to the lender each month.

Then, when your mortgage comes to the end of its term you’ll need to pay the mortgage back in full – so, if you borrowed £250,000, you would still have this amount to pay back.

It offers greater flexibility to buyers, your monthly repayments will be lower and you can apply for short term agreements including a 2 year interest only mortgage.

So make sure you compare interest only mortgages before you decide; your broker will help with this. You can also switch to a repayment mortgage if you want to.

Fixed rate interest only mortgage

An interest only fixed rate mortgage is similar to the adjustable interest only mortgage explained above, but the difference in interest only fixed rate mortgages is that you pay back a fixed interest amount over a number of years, depending on your agreement with the lender.

The benefit of a fixed interest only mortgage is that you’ll know exactly what your mortgage will cost you and if interest rates fluctuate and go up, your mortgage won’t be affected.

The downsides are that if interest rates drop, you won’t have the benefit of paying less - interest rates often start at high rates and if you decide to change contract you may face higher penalty costs.

Speak to one of the professional brokers we work with to find the best-fixed rate interest only mortgage, who’ll be able to do an interest only mortgage comparison to get you the best deal.

Need help finding one? Make an enquiry and we’ll put you in touch with one of the experts we work with.

Buy-to-let interest only mortgages

Buy-to-let mortgages are often interest only mortgages. As a landlord, you would expect that your monthly mortgage repayments are covered by the rent you’re charging your tenants.

There are still associated risks, such as if your tenant pays late your loan repayment may be late, and if the property is empty following the end of a tenancy, you’ll have to pay the fees until new tenants move in.

What is the eligibility criteria to get an interest rate only mortgage?

This is something you should know if you’re hoping to get the best interest only mortgage rates in the UK, as most lenders decide which rates to offer based on how closely you meet their eligibility requirements.

Generally speaking, most lenders will assess affordability on a case-by-case basis. In order to qualify for an interest only mortgage, lenders will consider a range of factors based on your personal circumstances so they can be confident that you’re in a position to pay it back.

The following criteria will most likely be taken into account.

Minimum income requirements

Most lenders would expect that you have a minimum income in order to qualify for an interest only mortgage.

There are however some that don’t have a minimum income requirement for interest only lenders. If that’s the case they need proof that there is an acceptable source of other funds so that you can repay the capital at the end of the mortgage.

The lender will then use an interest rate only mortgage calculator to work out what they can offer you. Do note that there are some lenders who simply don’t offer interest only mortgages.

A whole of market broker can help you find the right lender to match your requirements and what you’re eligible for. Get in contact with us and we can connect you with the ones we work with.

You can find out more about the benefits of using a whole of market broker later in the article.

Income multiples

Some lenders don’t have a minimum income stipulation as long as the loan is not outside of the usual income multiples they offer. So, if a lender only offers up to a 4.5x mortgage they would only be able to offer interest only mortgages for the same amount.

Age

There are usually age limits in place when it comes to approving interest only mortgages. Some lenders have a policy that the mortgage term can’t exceed the applicant’s 70th birthday but there are other lenders with different criteria who may offer them up to the age of 85 and a few who have no age limit.

There are also lenders who will offer specific age based rates such as a Lifetime 55+ Interest Only Mortgage whereby the applicant must be 55 or over to qualify.

Credit scoring

The importance of credit scoring varies between lenders. There are some who don’t use it and some who do a full credit search. There are also lenders who do a credit search (for example for three years to check where you were living) but they don’t use the score to judge their clients.

If a lender does use credit scoring to assess your eligibility the score can affect the type of mortgage you take out. Typically a lender would be looking to see that a client keeps up with payments, appears on the electoral register and has a decent sized deposit.

However, sometimes a lower credit rating or no credit rating comes up if you’ve lived at your current address for a short time or made the odd late repayment.

It’s worth noting that credit reference agencies are different, so if you’re given a good credit reference it doesn’t automatically mean that the credit score your lender gives you will also be good.

For questions about bad credit, see our section on bad credit mortgages.

How does the term length affect the amount of interest I will pay?

The length of the term of your mortgage will be determined by your lender and will vary according to your circumstances, though usually the decision will be tailored to your needs, especially if you take out a mortgage with a flexible lender.

What one lender offers can be very different from one another one offers you so don’t be put off if the first answer you get isn’t what you want. Typically you can expect a mortgage to last 25 years but there are lenders who will accept 5 and some as much as 40 years.

It’s also possible to change the length of an interest only mortgage, by extending it if you’re having difficulties or it may end up being shorter if you’re able to pay more than the interest rate, which you can opt to do.

You can also ask for fixed rate interest only mortgage deals or seek out other interest only mortgage offers.

Interest only mortgage comparison for lengths of term

When it comes to securing the best fixed interest only mortgages your lender will advise on a term of contract, however, you can change this once your contract has started depending on whether you need longer or can pay it off in a shorter length of time.

They’ll do this by using a whole-of-market best-fixed interest only mortgages comparison to determine current deals on fixed interest only mortgage rates.

Here are some things to consider which will impact on the overall rate you pay, though keep in mind they are all subject to individual circumstances and lender agreements.

10 year fixed interest only mortgage

In a 10-year fixed contract, your monthly payments are likely to be higher because you’ll be paying higher rates of interest. It also means that for a decade you’ll be held to contract so if you decide to move or change the contract you may be hit with fees.

7 year interest only mortgage rates

Though typically the decision is between 5 and 10 year mortgages some buyers opt for a 7-year contract, the same implications apply as for a 10 year contract in that you’ll be paying the same rates for 7 years however you may qualify for a lower rate for the first 5 years, this is something your broker will discuss with you.

5 year fixed rate interest only mortgage

In a 5-year contract, you’ll be paying the same fees for five years, regardless of how interest rates fluctuate. The rates you pay will always depend on a number of factors as already explained such as your amount of deposit - the more you can put down, the lower the rate you’ll get.

3 year interest only mortgage

Giving you greater payment stability than a 2 year contract without the pressure of keeping those rates for five years, 3 year contracts are available; again this is something a broker will discuss to see if there is a lender that meets your eligibility.

2 year fixed rate interest only mortgage

2 year contracts mean you’re tied to the same rates for only two years but typically you won’t only be paying a mortgage for two years. You may end up taking out four 2 year mortgages.

This means you may be able to secure the lowest rates each time but if there are major fluctuations in interest rates it may be that you get a good deal on year, followed by a more expensive one next time. These are risks you can discuss with your broker.

How can a ‘whole of market’ broker help you get the best rates for interest only mortgages?

By using one of the whole-of-market brokers we work with, you’ll automatically have better options available to you.

This is because they aren’t linked to specific lenders which means they have access to the best rate interest only mortgages, cheaper deals and with that additional choice ensuring they’re better placed to find the lowest interest only mortgage for you.

Using a ‘tied’ or ‘multi-tied’ broker is more limiting as they can only offer advice on the specific lenders they work with which restricts things like income types and the range of mortgage products they can offer.

We can help you find a whole of market broker, simply get in touch with us and we’ll connect you with the experts we work with.

Can I get a fee free interest only mortgage?

Most mortgage brokers charge fees, but the good news is that the experts we work with will only bill on success and will refund any upfront charges if they’re unable to find you a mortgage.

Interest only mortgage LTV ratios

The loan to value ratio (LTV) of an interest only mortgage will determine the rates you end up on and how much you need to borrow. Read on to find out more...

How do I secure the best interest only mortgages with a 60% LTV?

One way to lower your LTV is to lower the mortgage term by paying more deposit. If you’re between percentages, for example between a 60% and 65% LTV try and get to the 60%, perhaps by dipping into savings or trying to raise extra funds as it could be beneficial in the future.

How do I get the best interest only mortgage deals with 75-80% LTV?

The same applies if you want to get the best interest only mortgages with 75% LTV or an interest only mortgage deal with 80% LTV try and secure as a big a deposit as you can.

However, it’s not always this straightforward as even if you do raise additional money for a bigger deposit, a lender doesn’t base their decisions on one aspect.

They will still consider wider eligibility, such as your credit history, earnings etc. Remember too that all mortgage lenders have different criteria and if one offers you a particular deal, another may not offer the same.

This is why the best way to secure the most affordable deal is to speak with a professional mortgage broker. We can help you find one from the team of experts we work with. Simply get in touch by giving us a call on 0808 189 2301.

Can I get a 90-95% LTV interest only mortgage?

It will prove difficult as very few lenders would even consider offering an interest only mortgage to a customer who has just 5-10% deposit, but if there’s a deal out there that you qualify for, the whole of market advisors we work with can track it down for you. Make an enquiry here to speak to them on the phone today.

How much deposit is needed to get a low LTV?

LTVs are defined as percentages of the property. The more deposit you put down, the lower your LTV rates. This table explains how much you would pay back if, for example, you bought a property for £200,000.

LTV Rate Deposit Mortgage Repayment
95% £10,000 £190,000
80% £40,000 £160,000
75% £50,000 £150,000
60% £80,000 £120,000
50% £100,000 £100,000

Talk to an expert on how to get the best interest only mortgage rates

Whether you’re looking to get the best interest only mortgage products, have questions regarding LTV rates or have any questions about mortgage deals in the UK, call Online Mortgage Advisor on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee, and there’s no obligation or marks on your credit rating.

Updated: 23rd August 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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