So, if you apply for a standard P+I mortgage the bank will test whether you can pay the loan back over 30 years.īut, if you apply to go interest-only, you will have 5 years’ interest-only repayments and then 25 years of principal and interest. So really, the phrase “interest-only mortgage” is a bit of a misnomer because it’s not an interest-only mortgage, it’s an interest-only period. This means, at the end of that 5-year period, your loan will move to principal and interest by default. When you apply for an interest-only mortgage, you’re generally approved for a 30-year principal and interest mortgage with a 5-year interest-only period tacked on the front. An investor can often borrow slightly less than they could if taking out a standard P+I loan. It’s common for investors to initially think they’ll be able to borrow more on an interest-only mortgage, since their costs are lower. So, if you have one, make that your focus.Ĭan I borrow more if I go on interest-only? The aim of the game is to pay down your debt on your owner-occupier. That creates an incentive to pay back personal debt first. If the interest on your investment mortgage is still tax deductible, then your investment debt has a tax benefit, whereas your owner-occupier mortgage does not. So paying down personal debt frees up useable equity, whereas paying investment debt may not.ģ) It can help you save on tax. This isn’t available for many investment properties, because they are highly leveraged. Most investors borrow against their main home to fund the deposit for an investment property.
If worst comes to worst you can always sell your investment property to pay back the mortgage, but you may not want to sell your main home if you get into a tricky financial situation.Ģ) It can help you grow your portfolio more quickly. They’ll then use that money to pay down their own personal debt more aggressively.ġ) It helps to protect your main home. For a borrower with a £350,000 mortgage on the average two-year fixed rate of 5.38pc (as of May 30, according to Moneyfacts) and a 25-year term, overpaying by £200 a month would save nearly. In this case, the borrower will take the money they would have used to pay down their investment mortgage. Similarly, if you have an owner-occupier mortgage, it is generally better to pay this down first rather than paying back debt on your own home and your investment property at the same time.
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