Interest-Only Mortgage Rates

People opt for interest-only mortgages for several reasons, from buying investment property to taking out a lifetime mortgage. Here we look at Interest-only (IO) mortgage rates, what can influence the rates you get, and how to find the most competitive interest-only mortgage deals available to you.

Are the rates higher for interest-only mortgages?

When comparing interest-only and capital repayment mortgage rates, you’ll notice that the rates are slightly higher on interest-only mortgages, whereas monthly payments are lower. However, while the difference between the two types may seem negligible, keep in mind you’ll pay interest on your full mortgage balance for the whole mortgage term.

This means that you’ll pay more interest overall with an interest-only mortgage, making it more important to get a competitive rate. Like any mortgage type, lenders base their interest rates on the assumed risk of lending to each customer. Several factors influence the interest-only rates available to you, and these vary depending on the purpose of your mortgage.

Today's best interest-only mortgage rates

You can use our free mortgage sourcing tool below to compare the latest interest-only mortgage rates from across the market and choose a deal in real time.

How our mortgage rates tool works

We have set this tool to return interest-only mortgage deals by default but you can manually change it to display repayment mortgage results for comparison purposes.

Follow the 3 steps below to find the best mortgage rates available today using our rates tool:

1. Simply make your selections from the form based on the length of interest-only mortgage you require and how much you need to borrow

2. The advanced filter options let you dig down into the rates that are most useful to you, for example, if you’re looking for an offset interest-only mortgage

3. From the search result, click on the ‘enquire now’ button to speak to one of our experienced brokers about the suitability of this deal for your needs

Remember, those mortgage lenders who offer interest-only mortgage rates have broad criteria, and don’t all accept the same type of repayment vehicle. If you need further clarity on the best type of deal for your circumstances, speak to a broker first.

Factors that determine your mortgage rate

Many of the same factors that are considered by lenders when determining rates for capital repayment mortgages also apply to interest-only mortgages, although the requirements can be stricter:

• Deposit size - Typically, you’ll need at least a 15% deposit, but often more than that to qualify for an interest-only mortgage. The higher deposit you’re able to offer, the better the rates available to you generally are

• Minimum income requirement - Some interest-only mortgages have a minimum income requirement of around £25-£75k; however, this is not true of all of them. Having an income higher than their minimum requirement can contribute to reducing the interest rate available to you

• Creditworthiness - If you have bad credit, like with any mortgage application, this can impact the rates available to you

• Age - The closer you are to retirement age, you may be considered riskier when it comes to a standard interest-only mortgage, pushing the rates up, or even meaning deals are unavailable to you. However, there are specific later-life lending products that are available on an interest-only basis

• Property type - Like any other mortgage, lenders will consider the risk involved in lending on the specific type of property you want to buy. If you’re a buy-to-let investor, they may want to be certain you’re buying in a location with enough demand, for example. The construction type of the property will always be considered, no matter the reason for purchase. Some lenders shy away from non-standard construction properties, or charge higher rates to balance the risk

• Your repayment vehicle - Lenders vary in terms of what type of repayment vehicle they are willing to accept, and will consider some to be riskier than others. Those with the most financially secure repayment vehicles are likely to benefit from preferential rates. Keep in mind that lenders assess risk differently, so what they consider more secure could also vary from one lender to the next. Repayment vehicles may include, but are not limited to: Sale of the mortgaged property, sale of another asset, your pension lump sum, an inheritance, an investment portfolio, etc

Are better rates available through a broker?

They might be, yes. It depends on your circumstances. Although the tool on this page can show the current rates available on interest-only mortgages across the market, it won’t necessarily mean that specific rate is available to you.

The reason brokers can sometimes find better deals is that they can sift through all of the deals that are available for your specific circumstances. This can prevent you from applying for a rate you’re not able to qualify for. In some cases, they even have ‘broker-only’ deals that are not available to the general public. These can be more competitive, and can only be sourced by using a mortgage broker, like us.

Compare the latest interest-only mortgage rates for free

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Interest-only remortgage rates

The best interest-only remortgage rates can be highly competitive, especially if you have a good level of equity in your existing home. In fact, it can be easier to qualify for a residential interest-only remortgage than it is for a first mortgage.

The factors that determine the rates available to you are similar to those mentioned above for a standard interest-only mortgage, such as a strong repayment vehicle. But as your equity acts as your deposit, you can sometimes access more competitive remortgage rates.

Simply enter your equity amount and switch the tool to ‘remortgage’ to see the current rates available.

Buy-to-let interest-only remortgage rates

Interest-only mortgages tend to be standard for buy-to-let mortgages, as most investors plan to save their rental income for the final lump sum payment at the end of the mortgage term. Buy-to-let interest-only mortgage rates are usually higher than their equivalent repayment rates, given that there is more risk involved. Buy-to-let rates are also generally higher than those on residential mortgages, given the commercial nature of the lending.

The factors that influence the rates available are similar to those outlined above; however, there is more focus on the potential rental income a property can make when it comes to buying property for buy-to-let purposes.

To see the best interest-only buy-to-let rates currently available, simply choose the buy-to-let option when using the tool above. Click on the ‘Enquire now’ button to discuss this further with one of our team, and ensure it’s the most competitive rate available to you.

Why choose Teito for your interest-only mortgage?

As a whole-of-market broker, Teito can help you with your interest-only mortgage needs, whether you’re looking to use one for a buy-to-let purchase, remortgage, or even a regulated later-life lending product.

Our advisors can help you to find the best interest-only rates possible for your circumstances, as well as providing expert advice in all areas of mortgage lending.

People come to Teito every day because:

• We have brokers specialising in all types of interest-only mortgages and equity release products

• We offer a 5-star rated service, as detailed on leading review services

• We offer broker-only deals not available elsewhere

• You can compare the latest interest-only mortgage rates for free

If you need some help finding the best mortgage for you needs and circumstances, you can take advantage of a free, no-obligation chat with one of our interest-only mortgage specialists - get started here.