Should you get an Interest Only Mortgage for an investment property?

I’ve always been an advocate of having interest-only mortgages on your investment properties.

That is not to say I don’t agree with paying your mortgages off as I wholeheartedly do.

What I’m talking about is retaining control and not giving it up to the lender.

Reasons for an Interest Only Mortgage…

You never know what’s around the corner; bad tenant, voids, broken boiler or worse, tax increases or other increased costs, job loss, etc. These all mean a stretch on cash flow and having the lower interest-only payments could make all the difference.

Most lenders allow 10% repayment without penalties even during the product period such as a fixed-rate mortgage. On a mortgage of £200,000 that’s £20,000 a year or £1,666 a month. It’s unlikely you’d be making such high overpayments so it’s more than enough without penalty. A 25 year repayment mortgage at 4% would only be an extra £389 a month!

It costs you to get it back! Should you wish to get those repayments back it’s going to cost you; lender arrangement fees, valuations, legal, broker fees, etc could all be payable.

Due to the new PRA guidelines lenders are having to ensure that your background portfolio is also suitably performing.

Before these guidelines were introduced most lenders ignored your background portfolio and those that did look at it would invariably only consider interest-only mortgage payments even if they were repayment.

No longer! They often look at your ACTUAL payments.

You might easily be able to afford your payments but that’s not how the lenders are seeing things if there isn’t enough of a margin.

We’ve also seen this affect clients who have reduced their mortgage terms to pay off their loans quicker which also increases the monthly payment.

Once you are on a repayment mortgage the lender may not allow you to revert to interest-only should you need to do so.

If you would like to discuss your situation and options, please don’t hesitate to give me call on 01625 548248 or email me at: enquires@mortgagesavers.co.uk

You can also enquire via our website https://mortgagesavers.co.uk/