Home > Questionnaires > Questionnaire: Am I Eligible for a Interest-only Mortgage?

Questionnaire: Am I Eligible for a Interest-only Mortgage?

By: Emma Eilbeck BA (hons) - Updated: 16 Sep 2012 | comments*Discuss
Interest-only Mortgage Repayment Borrow

In the past mortgage lenders have been only too happy to offer borrowers a mortgage on an interest-only basis. But times have changed and mortgage lenders are restricting who they will offer this type of mortgage to because they fear many people will not be able to afford making full payments in future.

A lender will only allow you to pay interest-only for a certain amount of time, they will expect you to have a repayment vehicle in place, which means when you come off interest-only you can afford full capital repayments.

These questions should give you a good idea as to whether you will be eligible for an interest-only mortgage.

1) What is Your Situation?

  • A) I am a first-time buyer
  • B) I have had a mortgage for less than ten years
  • C) I have had a mortgage for more than ten years.

2) What is Your Repayment Vehicle?

  • A) I have no repayment vehicle
  • B) The equity in my property/receiving some inheritance
  • C) To use savings/investments

3) How Much Equity Do You Have in Your Home?

  • A) Nothing, I am a first-time buyer
  • B) I have around 20% equity
  • C) More than 25% equity in my home

4) How Much Do You Want to Borrow For the Mortgage?

  • A) More than £500,000
  • B) Between £2500,000 - £500,000
  • C) Less than £250,000

Your Answers

Mostly A - Interest-Only Not For You

Each lender will have a different policy when it comes to who they will offer interest-only mortgages to. If you are a first-time buyer it will be very hard for you to find a lender that is willing to offer you an interest-only mortgage, unless you have a secure repayment vehicle in place. If you plan to receive some inheritance soon it may be worth waiting until you receive this and use to make full mortgage payments, not just the interest.

A couple of years ago a lender would not have had any problem accepting inheritance as a suitable repayment vehicle, but now they may view this as risky.

If you have no equity in your property you will be classed as high risk and a mortgage lender will not have any security against the money they are lending you. The higher your mortgage loan the more cautious a lender is going to be when it comes to interest-only. Many lenders have banned interest-only for loans higher than £500,000.

Mostly B - You Will Need a Secure Repayment Plan in Place

If you already have some equity in your property this will work in your favour. If you have a history of repaying your mortgage this will also work to your advantage. Mortgage lenders are becoming increasingly sceptical about offering mortgages to anyone who is using the equity in their home as a repayment vehicle or planning to use the sale of their home to fund the mortgage.

There are however some instances when this might work, if for example you are making extensive home improvements to the property and then plan to sell it one. It is likely that you will find some lenders that are willing to offer you an interest-only mortgage, but you will have to prove to them every couple of years that your repayment plan is working and you will eventually have enough to switch to a repayment method.

Mostly C – You Are in a Good Position to Use Interest-only

From your answers, it sounds like you are a prime candidate for an interest-only mortgage. The key to being accepted for an interest-only mortgage is whether you can switch to a repayment mortgage in a few years.

The lender will want to see records/proof of any investments or savings you have that you expect to mature and make a profit on. They will also want to contact you every couple of years to make sure you are on target to switch to a repayment mortgage. If they are worried in any way that your investments will not make enough money, they could force you onto a repayment mortgage.

Interest-only mortgages are designed as a temporary solution for those who are struggling to make their mortgage payments. It may seem unfair that lenders have recently started to restrict who they will offer interest-only mortgage to, but ultimately it is to protect them and yourself.

If you cannot see your financial situation improving in the next few years nor have a plan in place to move off interest-only you should perhaps look at alternative routes to home ownership.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

(never shown)
(never shown)
(never shown)
(never shown)
Enter word:
Latest Comments
  • Becky
    Re: The Right to Acquire Scheme
    I am with Asra housing association and was given valuation of 204 thousand and after 3 months they said it’s 234 thousand as Waac…
    15 February 2018
  • Tas
    Re: The Right to Acquire Scheme
    Hi i have lived in my housing association house since 1998. I have been told that i do not have right to acquire because the…
    13 February 2018
  • glover_113
    Re: Shared Ownership Homes
    Hi we are wanting to move from our shared ownership property to another shared ownership but i can't go on the mortgage due to bad credit…
    12 February 2018
  • AffordableHomeAdvice
    Re: Low Income Housing
    Dee - Your Question:Hi, I've recently lost my house due to a house fire& I'm wondering if I'm priority. I am on a low income as I work part…
    8 February 2018
  • Dee
    Re: Low Income Housing
    Hi, I've recently lost my house due to a house fire& I'm wondering if I'm priority. I am on a low income as I work part time, how do I go about…
    7 February 2018
  • Ema
    Re: The Right to Acquire Scheme
    We have the right to accuire but trying to find a mortgage to do this has been a nightmare we are having to put a hold on this…
    6 February 2018
  • Gabby
    Re: Are You Classed as a Key Worker?
    I work in Westminster ,a day Centre for dementia, trained to work with all types of dementia am I a key worker
    1 February 2018
  • Maz
    Re: The Right to Acquire Scheme
    Me and brother lived all our lives he has the right to buy i don't can I make a joint claim to keep me safe so he does not just…
    29 January 2018
  • veronica1840
    Re: Planning Ahead
    Hello I'm a single mother and in this time is very difficult for me to pay private rent. I'm interesting to rent a room or studio flat with my…
    28 January 2018
  • AffordableHomeAdvice
    Re: Buying Your Council House
    Steve - Your Question:I would like to enquire about buyin my council houseOur Response:You can s
    19 January 2018
Further Reading...
Our Most Popular...
Add to my Yahoo!
Add to Google
Stumble this
Add to Twitter
Add To Facebook
RSS feed
You should seek independent professional advice before acting upon any information on the AffordableHomeAdvice website. Please read our Disclaimer.