If you’re a homeowner, you’ll likely have either a repayment or interest-only mortgage.
With a repayment mortgage, you repay the capital and interest via monthly payments. Meanwhile, with an interest-only mortgage, you only pay the interest you owe on the amount you borrowed.
However, there is a third option known as a part and part mortgage, which is where you pay off some of your mortgage but not the whole amount, so it combines both of the above.
We’ll explore how a part and part mortgage works and the pros and cons.
Before we jump in, it’s worth talking to a local and qualified mortgage broker via Unbiased to find out whether a repayment, interest-only, or a part and part mortgage is best for you.
What is a part and part mortgage and how does it work?
As we mentioned, you pay off most but not all of your mortgage over the term via a part and part mortgage.
So, at the end of your entire mortgage term, you’ll have to pay off the remaining balance.
This means you’ll benefit from lower monthly payments compared to a repayment mortgage but higher ones compared to an interest-only one.
So, it’s ideal for those looking for lower monthly payments without resorting to a longer mortgage term.
There’s no one-size-fits-all approach with part and part mortgages.
You need to discuss how much of your mortgage you plan to pay off during the term and the lump sum you need to clear when your mortgage ends with your lender.
For example, you could get a part and part mortgage for £200,000, with £150,000 on a repayment basis, while the remaining £50,000 is interest-only.
In this scenario, you pay £150,000 over your mortgage term and £50,000 when it ends. Your monthly costs are £1,014, including interest payments, if you have a 5% rate for 30 years.
If this is a repayment mortgage for £200,000, monthly payments would be £1,074. While it doesn’t appear like a huge jump in monthly costs, these add up over time.
One factor to consider is that mortgage lenders may have limits on how much of your mortgage can be interest-only, which is typically linked to your mortgage’s loan-to-value (LTV) ratio.
As you have to pay off a lump sum when your part and part mortgage ends, you must have a repayment plan, which you’ll need to discuss with your lender.
How do I apply for a part and part mortgage?
You apply for a part and part mortgage the same way you would for a repayment or interest-only mortgage.
Similar to these mortgages, you must pass credit and affordability checks, as well as provide information about your income and spending.
The main difference is that you have to discuss how much of your mortgage is on a repayment basis and how much is interest-only – the latter will be a smaller proportion.
You’ll also need a repayment plan, similar to an interest-only mortgage, as you must pay off the outstanding amount on your mortgage when it ends.
Can I switch to a repayment mortgage?
If your circumstances change and you are confident you can afford higher monthly repayments, you can switch to a repayment mortgage – if your lender agrees.
A downside to switching is that you’ll have higher monthly payments compared to having a repayment mortgage from the start of your initial mortgage term.
This is because you’ll essentially have less time to pay off your mortgage.
What are the advantages of a part and part mortgage?
There are many pros to having a part and part mortgage, including:
- Lower monthly repayments compared to a repayment mortgage.
- Being able to divide your mortgage between a repayment and interest-only mortgage.
- Paying less interest and a lower lump sum at the end of your mortgage term compared to an interest-only mortgage.
What are the disadvantages of a part and part mortgage?
There are also some cons to consider, including:
- Having a repayment plan for the end of your part and part mortgage.
- Potentially getting charged for early repayments on your mortgage.
- Paying more in interest than a repayment mortgage.
- Taking longer to pay off your mortgage compared to a repayment mortgage.
Is a part and part mortgage right for me?
Whether a part and part mortgage is right for you depends on your personal circumstances.
While the lower monthly payments are hugely beneficial, this comes at the cost of paying more interest and facing a potentially hefty lump sum at the end of your mortgage term.
Getting financial advice can help you make the right decision with your money.
Unbiased can connect you to a mortgage broker quickly, who will be able to advise you on the best mortgage based on your unique circumstances.