Are you struggling to decide between an interest-only and a repayment mortgage? Then consider a compromise with a part and part mortgage. As a combination of the two repayment methods, this may be exactly what you’re looking for.
What is a part and part mortgage?
A part and part mortgage – also called a part interest and part repayment mortgage – provides some middle ground between an interest-only and a repayment option when it comes to your mortgage payments.
With an interest-only mortgage, you only pay the interest due on the loan each month. This means that the entire loan has to be repaid at the end of the term. With a repayment mortgage, as well as paying the interest due, you repay some of the mortgage loan each month so that it is completely repaid by the end of the mortgage term.
A part and part mortgage, however, lets you repay a smaller portion of the loan than you would with a repayment mortgage. The interest is still paid as normal. As you’re not repaying as much capital each month, there will still be a balance to repay at the end of the term.
How does a part and part mortgage work?
Part and part mortgages are more flexible in their arrangement. You decide with the lender what percentage of the capital is to be repaid each month. Whilst you can negotiate on this, you should be aware that the lender is likely to have a maximum amount that’s accepted for the interest-only portion. You also need to provide the lender with a repayment strategy for the balance of the loan that’s left at the end of the term.
The benefits of a part and part mortgage
There are various benefits that make a part and part mortgage an attractive option:
- It provides more flexibility by combining an interest-only and a repayment mortgage.
- The monthly payments are lower compared to a repayment mortgage.
- The loan balance to be repaid at the end of the term is less than it would be with an interest-only mortgage.
- The monthly interest payable is lower compared to an interest-only mortgage as it’s calculated on a decreasing loan amount.
The drawbacks of a part and part mortgage
There are also drawbacks to consider before deciding whether to proceed with a part and part mortgage:
- You still need a repayment strategy for the outstanding loan balance that has to be repaid at the end of the term, just as you would with an interest-only mortgage.
- Not all lenders offer part and part mortgages, reducing the number of deals available.
- The overall interest payable is higher than it would be for a repayment mortgage.
How do you apply for a part and part mortgage?
Part and part mortgages are considered to be riskier for lenders than interest-only or repayment mortgages. As such, fewer lenders offer them and the lending criteria are usually stricter. Our mortgage brokers know which lenders provide part and part mortgages and can source the best deals to suit your needs.
To meet the lending criteria, you need to pass the affordability checks as you would for any mortgage application and the lender will check your credit rating. You usually need a higher deposit amount, such as 15% of the property value. You also need to provide a repayment strategy for the outstanding capital at the end of your mortgage term. This can be selling the property, for example, or using an endowment policy or pension to repay the balance.
Should you consider a part and part mortgage?
If you want the flexibility of being able to repay some of your mortgage each month but at more affordable amounts than you’d have with a repayment mortgage, then this type of mortgage may suit you. But you need to bear in mind that you’ll still have a lump sum to repay at the end of the term. You’ll also pay more interest over the term than you would with a repayment mortgage.
Whether or not a part and part mortgage is right for you depends on your circumstances. Our mortgage brokers can discuss your situation and the different options available to determine the best solution for you. Just give us a call on 01322 907 000 for impartial, expert advice and a tailored approach to your mortgage.