Part and Part mortgages
Usually, there are two main types of mortgages: repayment mortgages and interest-only mortgages.
Repayment mortgages are mortgages where you repay the capital and interest throughout the mortgage term.
Interest-only mortgages are mortgages where you repay only the interest during the mortgage term and then you pay back the capital at the end of the mortgage term. These mortgages aren’t so common and were very well used by buy to let mortgage borrowers.
Interest-only mortgages will have required the borrower to prove to the mortgage lender that they have a repayment vehicle or means in place for the capital which had to be repaid at the end of the interest-only mortgage.
What are Part and part mortgages?
Part and part mortgages are a combination of both capital repayment mortgages and interest-only mortgages. With a part and part mortgage, the mortgage balance is essentially split into a capital repayment balance and an interest-only balance.
This means you make your capital repayment balance mortgage repayments each month as well as your interest-only mortgage repayments each month which will only include interest payments and at the end of the mortgage term you will still have the capital borrowed for the interest-only mortgage as an outstanding balance which you now have to pay off.
Most part and part mortgage lenders may have a cap on how much of the mortgage can be interest-only. In most cases, you will likely have paid off most of the part and part mortgage as a capital repayment mortgage. The limits which are placed on how much of your mortgage can be interest-only will also tie into the loan to value rates the mortgage lender offers you.
A part and part mortgage is also known as a “part repayment and part interest mortgage”, or a “part capital and part interest mortgage”.
Example of a part and part mortgage:
As a simple example, imagine a £5000,000 mortgage, with £250,000 on a repayment basis and £250,000 on interest-only. Over the term of your mortgage, your monthly mortgage repayments will cover the interest on the interest-only mortgage, the interest on the capital repayment mortgage and capital repayment on the capital repayment mortgage. At the end of the mortgage term, you will have a balance of £250,000 from the interest-only part of the part and part mortgage which you now need to pay in full.
What do mortgage lenders consider when reviewing a part and part mortgage
The main considerations for qualifying for a part and part mortgage include:
The sum total of the repayment vehicle/plan/strategy
Is the repayment vehicle suitable
The loan to value based on your mortgage deposit
Most part and part mortgage lenders will pay more attention to the below:
- Income and affordability
- The purpose for the funds (E.g a remortgage)
- Your credit score and history
- Your age
- The type of property (is it standard construction or non-standard contruction)
What are the part and part mortgage age requirements
Most mortgage lenders will like for the mortgage term to end by the time you are 75 whilst other mortgage lenders will like for the mortgage to end by the time your working life has ended or you reach the retirement age.
Most part and part mortgage lenders may not lend to you if you are over 70.
You may still be able to find mortgage lenders who are willing to lend to you if you are over 70.
Can you get a part and part mortgage if you have bad credit?
If you have bad credit then you may find it harder to get a part and part mortgage but this depends on your individual case. You may want to seek advice from a bad credit mortgage broker to analyse your mortgage options.
There are mortgage lenders who will consider you for a mortgage with the below bad credit issues:
A debt management plan
A home reposession
What repayment vehicles will a mortgage lender accept for a part and part mortgage?
Most mortgage lenders may accept the below repayment vehicles for a part and part mortgage.
The list below is not a definite list as mortgage lenders will evaluate your part and part mortgage application on a case by case basis.
The repayment vehicles for a part and part mortgage include:
- Stocks and Shares ISAs
- Investment Bonds
- Sale of a second property
- Stocks and shares
- Endowment policies
Benefits of a part and part mortgage
You may find that many borrowers will choose the part and part mortgage as they may be unable to qualify for an interest-only mortgage but a part and part mortgage may just be within their reach.
Part and part mortgages may just be as attractive to buy to let mortgage borrowers who want to defer making any capital repayments as they plan on selling the property within a short space of time.
With a part and part mortgage, the monthly mortgage repayment may be lower than it would have been with a capital repayment mortgage but the interest being charged on the part and part mortgage may also be lower than it would have been on an interest-only mortgage.
As you can see, part and part mortgages have benefits when you look at both capital repayment mortgages or interest-only mortgages.
Part and part mortgages may be particularly favoured by borrowers who favour interest-only mortgages but are unable to come up with the full capital that they may need to pay off the interest-only mortgage at the end of the interest-only mortgage term. In the past, a lot of borrowers who took out an interest-only mortgage have suffered and lost their homes because they didn’t have sufficient capital to pay off their interest-only mortgage when the mortgage term reached its end. Part and part mortgages are seen as great alternatives to an interest-only mortgage in this regard.
Part and part mortgages can also be very helpful in situations where your repayment vehicle is likely to pay out less than the capital you may need to pay off the interest-only mortgage which you have borrowed or intend on borrowing you could simply split your payments with a part and part mortgage. This way your part and part mortgage will cater for the interest-only balance your repayment vehicle can pay off whilst allowing you to benefit from having the capital repayment deferred to the end of the mortgage term.
Switching a part and part mortgage to a repayment mortgage
Most mortgage lenders will let you switch your part and part mortgage to a repayment mortgage. You may want to do this if you feel you may struggle to repay the capital balance on the interest-only element of the part and part mortgage at the end of the mortgage term.
When switching your part and part mortgage to a repayment mortgage you should consider that your monthly mortgage repayments will rise and the mortgage lender may decline your request if you fail their mortgage affordability assessments for a full repayment mortgage.
Most part and part mortgage lenders will not allow you to switch to a full interest-only mortgage during your part and part mortgage term.
You can use a part and part mortgage calculator to see what your monthly payments may look like.
Are part and part mortgages right for you?
Part and part mortgages may not be right for you if you don’t have a suitable repayment vehicle to repay the interest-only portion of your part and part mortgage at the end of the mortgage term.
If your capital repayment vehicle is also risky and the returns fluctuate over time then you may also be at risk of defaulting on the part and part mortgage when the mortgage term ends and you are required to pay back the capital on the interest-only portion of your part and part mortgage.
This could be the case if your interest-only repayment vehicle makes fewer returns than were first anticipated. To mitigate issues such as this occurring with a part and part mortgage the lender will usually carry out periodic reviews of your repayment vehicle for the interest-only portion of your part and part mortgage.
Where to get a part and a part mortgage?
You can speak to a mortgage broker abut a part and part mortgage. As you will find, part and part mortgages have a much stricter mortgage affordability assessment criteria.
This is because a part and part mortgage still have an interest-only repayment segment which needs a suitable repayment vehicle which the mortgage lender will need to be satisfied with.
The percentage of the part and part mortgage which you choose to be interest-only may also determine how strict the mortgage affordability assessments are. This is because there are fewer funds at risk from the mortgage lenders perspective.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.