Last reviewed on 11th August 2023 by Martin Alexander (Mortgage Advisor)
Part and part mortgages can be a great way to minimise your monthly mortgage payments. Most lenders offer various mortgage types to suit different types of borrowers. This includes multiple options for how a mortgage can be repaid.
The vast majority of lenders will only agree to mortgages that you’re able to repay comfortably. Whether you require an interest-only or a repayment mortgage, choosing the right mortgage type is crucial.
Understanding each mortgage type is important, especially if you’re looking for more control over how to repay your mortgage. Part and part mortgages can be perfect for those wanting a combination of both repayment and interest-only mortgages. This guide will explain which factors to consider before making a decision on the right mortgage type for you.
What is a part and part mortgage?
Part and part mortgages are a combination of both interest-only and repayment mortgages. They can also be referred to as part-interest and part-repayment mortgages. This is because they consist of both interest-only and repayment elements. Typically, mortgages are either one type and are rarely combined.
A repayment mortgage alone would guarantee your balance to be settled at the end of your term, as long as you keep up with payments. Furthermore, an interest-only mortgage would only require you to repay the interest on your loan. As a result, you’d have the loan balance to pay once your term ends.
How does it work?
As an example, a part and part mortgage of £250,000 may have £175,000 on repayment and £75,000 interest-only. You’d then repay the £175,000 over the term of your mortgage. The remaining interest of £75,000 would be paid at the end of the agreed term.
It’s important to remember that interest can also accrue on the loan depending on the type of mortgage you have.
Advantages of having a part and part mortgage
- Lower monthly payments
- Less capital to pay at the end of your term
- Less overall interest
- Negotiable products
- Flexible lenders
One of the main advantages is that monthly mortgage payments can be lower than repayment mortgages.
Another huge advantage is that when compared to interest-only mortgages, you’ll have less capital to pay at the end of your mortgage. There’s also less overall interest to pay than an interest-only mortgage, as the capital is reduced over the term. Ultimately, the interest is reduced in line with the repayments on the loan.
Lenders tend to be negotiable, allowing you to set the interest and repayment amount on a mortgage. For instance, you may be able to set up your mortgage as 80% repayment and 20% interest-only.
Are there any disadvantages?
There aren’t any major disadvantages with part and part mortgages but there’s still a lot to consider.
- It may take longer to repay your mortgage
- Interest can reduce at a slower rate
- Repayment mortgages may have less overall interest
- There can be an outstanding mortgage balance at the end of your term
Although monthly costs are lower, you’re not paying as much towards the interest on the loan. This can alleviate financial pressures but will take longer to pay your mortgage off in comparison to a repayment mortgage. As a result, a repayment mortgage is likely to save you money on interest payments. This is because the amount of interest will reduce at a much slower rate with a part and part mortgage.
You’ll also have an outstanding interest balance once your mortgage term expires. Even if you have a repayment plan to clear the balance at the end of your mortgage term, it’s still a cost you’ll have to prepare for.
With all this in mind, part and part mortgages may be cheaper each month, but will typically cost more overall than a repayment mortgage. That being said, you can make an enquiry and an advisor will go through each of the costs with you, giving you a more accurate idea.
How to apply for a part interest and part repayment mortgage
Applying for a part-interest and part-repayment mortgage isn’t that different from applying for a regular mortgage. For instance, you’d still require an income, deposit, and undergo a credit check. The small differences appear in how a mortgage is arranged.
Most lenders are flexible in how much of the mortgage you’d want to repay and have on an interest-only basis. For this reason, lenders will discuss what they’ll offer to try and tailor a solution around your finances. The majority of lenders will have a maximum limit on how much of your mortgage can be interest-only. As a result, most of your mortgage is likely to be on a repayment basis with a smaller part on interest-only.
Your lender will also require details of how you intend to pay the balance towards the end of your mortgage. Whether you have a repayment vehicle or another repayment strategy, be sure to have every detail ready for when lenders request this information.
Can I remortgage mid-term?
Financial situations can often change. This is likely to happen over the length of a mortgage, as mortgages often run for decades. For instance, if your repayment strategy no longer seems viable or you simply want to start repaying more of your mortgage earlier than planned, you may be able to remortgage.
Switching to a repayment mortgage
Typically, in cases such as these, the aim of a remortgage would be to switch to a repayment mortgage. This can also be useful when you have an increase in income and want to repay your mortgage in a more traditional manner. Furthermore, you won’t have an outstanding balance at the end of your term, if you’ve repaid on time.
What if my income has changed?
If your finances have taken a turn for the worse, it may become difficult to remortgage. This is because each time you switch mortgages, your lender will carry out an assessment to ensure your mortgage is affordable. If your finances are stretched, you could fall short of affordability. Do proceed with caution if you find yourself in this situation or contact our advisors for help.
Is mortgage advice worth having?
To find a suitable mortgage, speak to an experienced advisor who understands the entire mortgage market. The experience from an expert can often save a huge chunk of money over your mortgage term.
Each borrower’s finances vary and having some flexibility on your mortgage can certainly help. Our advisors will select the most suitable mortgage type to match your individual needs. While a deal may be great for one borrower, it doesn’t mean that it’s also the best deal for you.
Some borrowers may benefit from a mortgage that has flexibility, whereas others may want something more secure, such as a fixed-rate mortgage. If you’re open to increased risk, you may even choose to have a tracker mortgage. Nonetheless, the market is filled with different mortgage types, each with different terms and conditions.
You can make an enquiry and an advisor will call you straight back. We’ll then find you the most suitable mortgage type, along with the best deal you’re eligible for.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.