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Part And Part Mortgage

Confused between repayment mortgages and interest-only mortgages? Read on as we discuss part and part mortgages, a flexible financing solution for prospective homeowners.
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Most first-time buyers are aware of two types of mortgage repayment methods – interest-only and capital repayment. 

What if we tell you there is a third method that may offer the best of both worlds? Yes, we are discussing part and part (part interest, part repayment) mortgages, allowing you to split your home loan.

This financing model further allows you to combine the flexibility of both a repayment and interest-only mortgage.

So, if you are new to this, you’ve landed in the right place. This informative article breaks down the ins and outs of part and part mortgage and explores its benefits, potential risks, and more.

What Is Part And Part Mortgage?

“Part capital and part interest only mortgage” or “part repayment and part interest only mortgage” lets you settle a portion of your mortgage gradually, leaving some unpaid amount at the end.

As such, this type of mortgage strikes a balance between interest-only and repayment mortgages

How Does Part And Part Mortgage Work?

Part and part mortgages vary in structure. The amount of capital repaid during the term and at the end can be customised with your lender to suit your needs. 

However, a majority of lenders set maximum interest-only amounts, often linked to the loan-to-value ratio (LTV) of the mortgage/property.

Also, note that while most aspects of a part and part mortgage are negotiable, a significant portion of your mortgage must be repaid on a capital repayment basis.

Repaying The Interest-Only Portion

With a part and part mortgage, you must assure your lender that you can settle the remaining amount at the end like you would in an interest-only mortgage.

Needless to say, this requires a solid “repayment strategy,” so be ready for thorough inquiries about your plan when applying.

Switching To A Repayment Mortgage

If your financial situation improves and you prefer higher monthly payments to accelerate the repayment process, you can consult your lender and switch to a repayment mortgage in many cases. Most lenders allow such a switch anytime during the repayment period.

Note that this entails higher monthly payments than starting with a repayment mortgage, as it potentially shortens the repayment period if you initially took a shorter term.

However, transitioning to a fully interest-only mortgage mid-way through a part and part mortgage is typically not an option.

Advantages Of Part And Part Mortgages

  • Reduced overall interest on the repayment part as it lessens over time compared to interest only. 
  • Lower monthly payments compared to full capital repayment
  • Borrowers also have a say in determining the ratio between the two mortgage types
  • Decreased lump sum at the end of an interest-only mortgage as a part is repaid. 

Possible Disadvantages Of Part And Part Mortgages

  • An outstanding mortgage balance could remain at the term’s end
  • Interest decreases at a slower rate
  • Repayment might take longer 

So, while monthly costs are lower, you’re not allocating as much to loan interest. This eases immediate financial burdens but extends the mortgage payoff compared to a repayment. 

Consequently, a repayment mortgage is likely to save you money on interest. Despite the potential for lower monthly expenses, part and part mortgages typically tally up to more than repayment mortgages overall. 

Hence, we recommend collaborating with an advisor to break down the costs, solidify your plan and ensure backup options are in order.

Popular Part And Part Mortgage Lenders

While slightly riskier than traditional options, these mortgages are offered by select high-street lenders, including:

  • Leeds Building Society
  • Barclays
  • Halifax
  • Skipton Building Society 

Specialist part and part mortgage lenders, not easily found through a quick Google search, also exist.

Brokers can tap into this market, negotiating with specialists who may offer more favourable rates due to their expertise and perception of lower risk.

Also, note that going directly might lead to rejection regardless of your preferred lender. Hence, the expertise of a broker can streamline the process, ensuring you secure the best deal. 

Do You Qualify For A Part And Part Mortgage?

Specific conditions usually apply to part and part mortgages, with each lender having their own criteria. However, common factors considered by all lenders include:

1. Deposit

A higher deposit decreases risk. Most lenders accept a maximum loan-to-value (LTV) of 85% in part and part situations, making lower values profitable for you.

2. Property Type And Value

Interest-only arrangements are deemed riskier, and non-standard properties add an extra layer of risk. However, some specialist lenders, accessible through a broker, may be more lenient.

3. Repayment Plan

Lenders assess how you intend to clear the interest-only balance at the term’s end, requiring evidence of your plan.

In any mortgage application, the key lies in proving you can feasibly repay the borrowed amount. Hence, you must be transparent in providing details on income, expenses, existing debts, and credit.

Moreover, accepted repayment vehicles among lenders may include:

  • Equity investments (or a stocks and shares ISA)
  • The sale of the property
  • Private pension or SIPP (self-invested personal pension)
  • The sale of another property
  • Bonds or gilts
  • Endowment policies

How To Get A Part And Part Mortgage 

If a part-and-part mortgage sounds like the right financing model for your needs, check out the following steps to secure one:

Step 1 – Use A Part And Part Mortgage Calculator 

This helps determine the ideal ratio for you and gives a glimpse of potential monthly repayments. Although the part repayment, part interest-only ratio is finalised by the lender, having an initial idea is advisable.

Step 2 – Assess Your Repayment Plan

Gather evidence on how you’ll repay the interest-only portion at the end. For instance, lenders like Halifax have specified their requirements online. 

Step 3 – Consult A Suitable Broker/Advisor 

A part and part mortgage broker can guide your repayment plans, ensure practicality within your finances, and recommend a lender likely to approve your application with favourable rates and terms.

Step 4 – Apply To The Mortgage Provider

According to your broker’s advice, complete and submit your mortgage application.

Alternatives Of Part And Part Mortgages

Interest-Only Mortgage

We understand that part and part mortgages are not everyone’s cup of tea. Hence, here are other financing solutions you can consider…

  • Joint Mortgage: Choosing this mortgage type allows you to share the repayment responsibility with others, lowering the individual burden.
  • Full Repayment Mortgage: This stands as a reliable option if you lack a repayment vehicle but can manage higher monthly repayment amounts.
  • Interest-only Mortgage: If lower monthly payments are your priority, investigating a traditional interest-only mortgage could serve as a viable substitute.

FAQs

1. What if your income changes after opting for a part and part mortgage?

If your financial situation worsens after opting for this type of mortgage, securing a remortgage may pose challenges. With each mortgage switch, lenders assess affordability, and strained finances may hinder approval.

Hence, you must exercise caution in such circumstances and remain as financially robust as possible. 

2. Is a part and part mortgage available for buy-to-let?

Yes, if you want to buy a property for rental purposes, you can consider a part and part mortgage. Again, we recommend consulting a broker to contact a specialised buy-to-let lender.

3. Are there any age restrictions for a part and part mortgage?

Age limits vary among lenders, but they generally shouldn’t be overly restrictive. That said, certain lenders may even entertain applications from individuals approaching retirement over the age of 70.

To Sum Up

So, you see, part and part mortgage offers a unique blend of flexibility and affordability for homebuyers.

While it presents a middle-ground solution between repayment and interest-only mortgages, careful consideration of individual financial circumstances is crucial. 

Note that age limits and eligibility criteria vary among lenders. But with the right advice and a solid repayment plan, this mortgage option can prove valuable for prospective homeowners. 

We further recommend exploring alternatives, like joint mortgages, and choosing a model that best suits your needs.

However, regardless of the type of mortgage you choose, consulting a knowledgeable broker is your best bet!

Your home may be repossessed if you do not keep up repayments on your mortgage.

All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.

Our goal is simple - to provide most up-to-date and accurate mortgage information to make your mortgage journey as stress-free as possible. Have a question? Fill up the quick form and one of our mortgage advisor will connect with you.

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