This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Dental and Medical Financial Services Limited is an appointed representative of Best Practice IFA Group Limited, which is authorised and regulated by the Financial Conduct Authority.
For doctors and other medical professionals, your mortgage is likely to be your biggest monthly expense. When your finances are squeezed, sticking to your budget might feel like an impossible task and you’ll be looking at where you can cut back. If you were able to reduce your monthly mortgage payment, even for a short period of time, your savings could increase significantly. Find out more about how switching to an interest-only mortgage can help you save.
What is an interest-only mortgage?
In an interest-only mortgage, your monthly repayment only consists of the interest on your loan and not the capital. So, while your interest-only terms are in effect, you pay just the interest, which may make your monthly payments lower.
Interest-only mortgages were quite popular prior to the 2008 financial crisis. Unfortunately, in the run-up to the crisis, many people were taking out interest-only mortgages without any feasible way to pay them back. After affordability tests were introduced as a result, they fell in popularity. Now, it appears interest-only mortgages are making a comeback because borrowers have the chance to save hundreds of pounds per month.
Interest-only mortgages can help you save
If you are looking for a way to reduce your monthly costs because you’re worried you won’t be able to keep up with your mortgage payments or are simply just looking to save money where you can during this cost-of-living crisis, consider a temporary switch to an interest-only mortgage.
It’s important to note that interest-only mortgages do come with specific payback terms, so it should be treated as a short-term measure for saving money, not a long-term solution. Keep in mind that since you are only paying the interest for a short period, when the time comes to resume your full payment, your monthly bill will actually be higher than before.
Who can take out an interest-only mortgage?
For the right homeowner, an interest-only mortgage could be a lifesaver. They are available to borrowers with a proven plan of how they will repay the total amount owed at the end of the mortgage and who can cover the increased costs upon resuming normal payments. They are ideal for someone with a good financial history of repayments and with plenty of equity in their home. The less money you need to borrow, the higher your chances of approval are.
Interest-only mortgages won’t be available to everyone, as lenders tend to be very discerning when it comes to granting interest-only mortgages to homeowners. It’s important to remember that you can’t rely on a potential future windfall, nor can you use trends/potential home prices to guarantee that you can pay back the money at the end of the term. If you don’t have a plan to fully repay your mortgage at the end of the term, you might be forced to sell in order to repay your debt.
Is interest-only right for you?
If you need a short-term reprieve from your monthly mortgage payments, moving to interest-only might be right for you. For a full review of your current financial situation and for advice on the best option for you to save money during this cost of living crisis, get in contact with Dental & Medical Financial Services. They will be happy to walk you through your mortgage options and find the best deal for you.
