Interest-Only Remortgages Explained

Here, we’ll look at your options for remortgaging or refinancing an interest-only mortgage and why you should always speak to a broker to ensure you get the best deal for your circumstances.

Can you remortgage an interest-only mortgage?

Yes. Some mortgage lenders will consider a straightforward remortgage on the same interest-only terms. In many cases, your existing lender will be prepared to offer you a new deal. But it’s important to check the rest of the market, too, as there may be a better deal available by switching lenders.

It’s also worth looking at what repayment terms are available. Interest-only mortgages are usually taken out to make monthly payments more manageable, but if your property has gone up in value, your loan-to-value ratio will be lower, and you may be able to get a lower rate.

Your personal circumstances may have also changed. If you have had a pay rise since taking out your mortgage or have paid off other commitments, a repayment mortgage (that will see your payments eat into the capital borrowed and not just the interest) may be affordable.

How to get an interest-only remortgage

Your first step should be to enquire with us so we can match you with a mortgage broker specialising in interest-only remortgages. This will increase your chances of securing the best rate and deal, and their guidance will simplify the process.

The advisor we match you with will guide you through the following steps to full application:

• Calculating your loan-to-value ratio and reviewing your interest-only repayment vehicle to make sure it is still on track to repay the capital amount owed
• Optimising your credit reports to check for any inaccuracies or out-of-date information which could cause issues if not corrected before you apply for a remortgage
• Finding the right remortgage lenders currently offering the most competitive rates
• Gather all the necessary documentation needed for your remortgage application.

Interest Only Remortgages Rates

Take a look at some example rates below for an idea of what to expect:

Please note that the above rates were accurate at the time of writing but are always subject to change at the lender’s discretion. The best way to find the most up-to-date deals is to speak to a mortgage broker.

Can you release equity?

Yes. You could do this by extending your loan on either interest-only or repayment terms, providing you meet the providers’ eligibility criteria and can prove affordability.

Switching to a repayment mortgage will give you far more options in terms of lenders and products, so you should look into it. You may be able to get a more suitable deal.

You might want to consider a part and part mortgage to remortgage and release equity without increasing your payments too much. This hybrid of an interest-only and repayment mortgage gives you the best of both worlds.

Alternatives to remortgaging

If your interest-only mortgage is coming to the end of its term, you will soon be required to repay the capital borrowed.

If your repayment vehicle is not sufficient to cover the balance, don’t despair – there are alternatives to remortgaging:

• Equity release: If you’re over 55, you could take out an equity release product. This could allow you to pay off your mortgage and, possibly, release some of the equity in your home to spend on whatever you want. One of the good things about equity release is that you must take financial advice before proceeding, so you will always make a fully informed decision.
• Retirement Interest-Only Mortgage (RIO): Older borrowers may want to look into the possibility of a retirement interest-only (RIO) mortgage. A RIO mortgage is like any other interest-only mortgage but has no set term, so the capital is repaid when you die or move into long-term care.
• Sell your property: Not everyone will want to do this, but if its value has gone up considerably, you may be able to settle your mortgage and use the equity to buy a smaller place to live.
• Sell other property or assets: It’s worth taking an inventory of your assets (including shares and investments) – particularly if you have owned your home for 25 years. You might be able to clear your mortgage or significantly reduce the remortgage amount and ensure your new monthly payments are manageable.
• Extend your term: Depending on your circumstances, your current provider may agree to extend your term. If they do agree to this request, it is still worth comparing their deal against alternatives to ensure you don’t end up overpaying.

Refinancing an interest-only buy to let mortgage

When remortgaging an interest-only buy-to-let property, you will have more lenders available than when doing so with a residential mortgage.

Nonetheless, it’s worth considering your options for switching to a repayment buy-to-let. Depending on the amount you need to borrow and the value of the property, you may be able to get a more affordable rate and start clearing your capital as well as servicing the interest.

Likewise, if you already have a repayment buy to let and find the repayments a squeeze, remortgaging to interest-only could help your cash flow situation.

Remortgaging to an interest-only mortgage

Interest-only could also be an option for residential homeowners looking for alternatives to relieve the burden of rising interest rates and higher monthly payments with a capital & repayment mortgage.

This is not a decision you should enter into lightly, so it’s advisable to draw up a full income and expenditure report and speak to an experienced remortgage specialist before making a decision.

Use our mortgage calculator below to compare your mortgage payments based on capital and repayment versus interest-only.

Once you’ve inputted the amounts into the required fields, click on the toggle button to see the difference in monthly payments between each repayment method.

Get matched with a remortgage specialist

Interest-only mortgages are often a great way to get onto the property ladder, but they are not always the best long-term solution. That’s why it’s always wise to assess your finances and consider all options when you come to remortgage.

Our broker matching service will pair you up with a remortgage specialist who has extensive experience helping people in your circumstances understand their options and make the right decision for them.

Get matched with your ideal remortgage specialist. Call now on 0330 818 7026 or enquire online to arrange a free, no-obligation chat.