Like any loan, with a mortgage you have to repay the capital (the amount you borrow) and, until it's repaid, pay interest on the capital outstanding.
Interest only
Repayment
Part interest only
If you choose to conduct any part of your mortgage on an interest-only basis, the monthly payments you make only cover the interest on the loan. It is a requirement that you have a repayment plan in place when you apply for any interest-only lending. This type of mortgage does not pay back any of the money you have borrowed, called 'capital' during the mortgage term.
As long as you’ve made all your monthly interest payments, the amount you owe at the end of the mortgage term will be the same as the amount you borrowed. To repay the capital you need a lump sum at the end of this term. It is your responsibility to make sure you have a plan in place that helps you repay this amount.
An interest-only mortgage is a higher risk than a repayment mortgage. In most cases, there is no guarantee that you will be in a position to fully repay the capital amount you owe at the end of the term.
Important Notes:
We do not provide advice on repayment plan(s) or make any guarantees that your plan(s) will be sufficient to repay the outstanding balance (capital) at the end of the mortgage term.
You should review your plan(s) regularly during the term of your mortgage to make sure it is on track to repay the outstanding balance.
Periodically, we will ask you to provide evidence of your repayment plan(s). If you are unable to satisfy us that your repayment plan(s) remains on track to repay the outstanding balance on your mortgage, we may ask you to transfer some or all of your mortgage onto a capital and repayment basis.
Please remember it is your responsibility to ensure you have sufficient funds to repay your outstanding balance at the end of the mortgage term. If you are unable to do so, your home may be repossessed to repay the outstanding balance.
Our Requirements:
Our requirements for various transactions are detailed below. Only when our requirements have been met will we be able to complete the transaction.
When you request a new mortgage or additional borrowing on an interest only basis you will need to provide us with evidence of your repayment plan(s) from the table below. We will make an assessment of whether the repayment plan(s) meets our requirements. This includes checking to see whether it has a reasonable prospect of repaying the amount you borrow on an interest only basis.
If any of your existing debt is on an interest only basis and you require either additional borrowing or wish to switch to a new deal we will need signed confirmation from all parties to the mortgage that you have a repayment plan(s) in place to repay the existing borrowing at the end of the term. This is still necessary if your additional borrowing is to be conducted on a repayment basis.
If you request to convert your existing mortgage account to an interest only basis or to increase the proportion of interest only lending you will have to provide evidence of a suitable repayment plan(s). from the table below
Where any part of the mortgage is currently on an interest only basis, you will be required to provide evidence of the repayment plan(s) intended to repay this part of the debt, before any further interest only conversion can take place.
If the repayment plan you originally intended to use is no longer on our acceptable list (see below) we will require signed confirmation from all parties to the mortgage that it is still intended that this plan will be used to pay off the remaining capital at the end of the current interest-only mortgage term. The repayment plan(s) you intend to use to support your increased interest-only lending must be on our acceptable list.
The table below details the plans we accept for new Interest Only lending and the method we use to help us make this assessment.
| Repayment Plan | Evidence required | Assessment method |
|---|---|---|
Endowment ploicies (UK) |
Copy of latest projection statement dated within last 12 months |
Endowment companies will present
|
|
Investment Backed (UK) Stocks and shares Unit trust/Open Ended Investement Bonds |
Copy of latest statement dated within last 12 Months |
We will compare the value of the Loan amount x 120% |
| Pension (UK) |
Copy of latest projection statement dated within last 12 months |
For the purpose of backing an interest Loan amount x 120% |
| Stocks and Shares (UK) | Copy of share certificates, nominee account statement or confirmation from a recognised stock broker containing evidence of share holdings together with their valuation |
See Investment Backed - Stocks & Shares ISA |
Savings (UK) |
Copy of passbook/statement for savings accounts showing balance within last 12 months |
We will compare the value of the savings Loan amount OR Current balance to cover Interest only |
Sale of second home (UK) |
Property details, confirmation of ownership, evidence of amount of any mortgage debt |
We will check the ownership of the Loans with term if 10 years or less, Loans over 10 years term equity at Any outsanding mortgage will be deducted In some circumstances, you may need |
As with any investment, there is a risk and we strongly recommend you take independent financial advice.
When you have a repayment mortgage, the monthly payment you make gradually pays off both the amount you borrowed (the capital) as well as the interest on the loan. As long as you make all your monthly payments when they’re due, the loan amount is guaranteed to be fully repaid at the end of the term.
You might have split your mortgage between repayment and interest-only (this will be shown clearly on your annual mortgage statement). This means that at the end of the term, the amount of the mortgage being paid on an interest-only basis will need to be repaid by a lump sum - so you need to make sure that you have an acceptable plan in place to repay this amount.
