Part Repayment, Part Interest Only Mortgages

When it comes to mortgage repayment methods, people typically choose between the capital repayment and interest only model but there is a third option. Part interest part repayment mortgages are, effectively, a hybrid of both.

This comprehensive guide looks at what a part and part mortgage is, how they work, who qualifies and how to explore it as a viable alternative to the main standalone repayment methods.

What is a part-and-part mortgage?

This type of home loan combines both interest-only and capital repayment by allowing you to pay just a portion, rather than all, of your mortgage loan back through monthly repayments. That leaves a smaller balance to be settled up at the end of the term.

You can get a clearer idea of how these mortgages work and what your repayments could look like if you choose one by trying our calculator below.

The benefits of these mortgages

Half interest and half repayment mortgages offer a unique and flexible repayment solution, bringing multiple benefits.

These include:

• The ability to pay less in monthly repayments than in a capital repayment model;
• A reduction in the lump sum that would be paid at the end of an interest-only mortgage;
• Less interest to pay than on an interest-only mortgage as it reduces over time; and
• The opportunity to have a say in the ratio between the two mortgage types.

The drawbacks, as with an interest-only mortgage, are that you do still need a feasible way of paying off that lump sum at the end of the mortgage and if your repayment vehicle doesn’t work out, you’d need to have another one in place to repay the outstanding debt.

An advisor would be able to work with you to ensure your plan is a solid one and that you have back up options available.

How to get a part-and-part mortgage

If you think this is a model you’d like to explore and potentially apply for, these steps will get you off to a good start:

Who qualifies for this type of mortgage?

There are generally specific stipulations when it comes to a part and part mortgage, each lender will still work to their own criteria but what they will all be looking at is:

• Your repayment plan: A lender will want to know how you plan to pay off the remaining balance for the interest-only element at the end of the term and see evidence of this plan.

• The property type and value: Interest-only is viewed as a risker arrangement. If a property is non-standard then there’s an additional layer of risk that may affect a lender’s willingness to loan to you on a part and part basis. There are some specialist lenders however that could be accessed via a broker in this situation.

• The deposit: A higher deposit reduces the risk for lenders. The maximum loan-to-value (LTV) most lenders will accept in a part and part situation is 85% so anything lower than that will work in your favour.

As with any mortgage application, the crux of the assessment lies in whether you can feasibly repay what you’re asking to borrow, so you’ll also need to submit information on your income and outgoings, any existing debt and credit.

Who offers part and part mortgages?

The fact they come with a slightly higher risk level than conventional mortgages does mean that the market for part and part mortgages is narrower – but it does exist. These type of home loans are available – subject to availability – with some high street lenders including:

• Skipton Building Society
• Halifax
• Barclays
• Leeds Building Society

What a quick Google search won’t pull up though are the number of specialist part and part mortgage lenders out there. Working via a broker, there is more of a chance to negotiate with such lenders and, as specialists, they sometimes offer better rates, viewing the situation as less risky than a mainstream lender might.

Regardless of which lender you feel is right for you, approaching directly puts you at risk of a rejection. Working through a broker will speed up the process of finding the best deal while allowing for an expert to take thorough stock of the rates, ratio and terms being offered to you.

Get matched with a part-and-part mortgage specialist

This hybrid model has a few more calculations involved and requires a watertight repayment plan. Working with a broker ensures you’re applying to the best lender for the best part and part mortgage for you. The brokers we work with have access to the entire lending market and will be able to do a part and part mortgage comparison, determining the best rates available at the time of application.

You can enjoy a free, no-obligation consultation by calling 0808 189 0463 or filling out an inquiry form.