An interest-only remortgage involves switching your current mortgage to a deal where you only pay the interest each month. This replaces your previous mortgage arrangement, whether it was interest-only or a repayment plan.
With an interest-only mortgage, your monthly payments cover just the interest, meaning the original loan amount remains unchanged. The full balance must be repaid at the end of the mortgage term, so it’s essential to have a solid repayment plan—often called a repayment vehicle—in place.
In contrast, a repayment mortgage requires you to pay both the borrowed capital and interest over a typical term of 25 to 35 years. Your monthly payments include both components, with interest costs decreasing over time—a process known as “amortization”—while capital repayments gradually increase. Since interest-only mortgages have lower monthly payments than repayment mortgages, they are especially attractive to property investors looking to maximize cash flow.
Whether transitioning to an interest-only mortgage is a smart move depends on your financial circumstances, long-term goals, and ability to repay the loan.
One key advantage is lower monthly payments, as you’re only covering interest rather than repaying the loan balance. This can free up cash for other expenses, investments, or even making overpayments (if permitted by your lender). It may also be beneficial if you expect your income to increase in the future, allowing you to manage your finances more flexibly in the short term.
However, there are significant drawbacks. Since you’re not reducing the loan principal, you’ll need a solid repayment strategy for when the term ends. This could involve savings, investments, or selling the property, but if these plans don’t materialize, repaying the full balance could become a challenge. Additionally, qualifying for an interest-only mortgage is often more difficult. Lenders usually require a larger deposit, thorough affordability checks, and a viable repayment plan. While monthly payments are lower, you could end up paying more interest over the long run compared to a repayment mortgage.
Affordability – Lenders assess your income to determine whether you qualify. Many require a minimum annual income of between £50,000 and £100,000 for single or joint applicants. However, some specialist lenders accept lower earnings and may consider self-employed individuals with sufficient proof of income.
Self-Employment – Self-employed borrowers generally have access to similar interest-only mortgage deals as employed applicants. However, you’ll usually need at least three years of financial records. If you have a shorter trading history, specialist lenders may still be able to assist.
Credit History – A poor credit history, including CCJs, IVAs, or previous bankruptcy, can limit your options. However, some lenders specialize in adverse credit mortgages and may still consider you for an interest-only deal.
Property Type – If your property is considered non-standard—such as an ex-council house, studio flat, or unusual construction—you may find fewer lenders willing to offer an interest-only remortgage. Specialist lenders may be required in these cases
Book an appointment with our team to talk through your mortgage needs and get personalized advice at a time that works for you.
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