Regulatory Review Could Boost Popularity of Part-and-Part Mortgages

Surge In Popularity For Part-and-Part Mortgages

Due to a regulatory review of mortgage lending rules by the Financial Conduct Authority, part-and-part mortgages are gaining popularity, especially among underserved groups like first-time buyers and the self-employed.

Unique Benefits of Part-and-Part Mortgages

As mentioned in the FCA’s review, part interest-only and part repayment mortgages could pave the way for consumers to become homeowners earlier. The part-and-part mortgages are indeed a “unique solution” providing payment flexibility and gradual reduction of mortgage capital, says Ascot Mortgages.

Understanding Part-and-Part Mortgages

There are two main types of mortgages – “repayment” and “interest-only”. In a repayment loan, borrowers clear the amount borrowed and any interest, while an interest-only mortgage involves paying off the interest every month and a lump sum for the remaining capital at the end of the loan term. The part-and-part mortgage provides a third option, a mix of both which secures lower monthly repayments and ensures home ownership at the end of the term, explains Clifton Private Finance.

How Part-and-Part Mortgages Work

The application process for a part-and-part mortgage is similar to that of a repayment or interest-only mortgage, but it can significantly reduce your monthly repayments, according to Tembo Mortgages. It’s an attractive option for those seeking lower monthly payments without resorting to a longer mortgage term, says Unbiased. As part of the process, you’ll be required to discuss how much of your mortgage you plan to pay off each month and the lump sum for the interest-only portion at the end of the term.

Pros and Cons of Part-and-Part Mortgages

The primary advantage of a part-and-part mortgage is the potential for lower monthly repayments, which is beneficial for those on a strict budget, as reported by The Telegraph. The loans are also flexible, allowing overpayments if affordable. However, the flip side is that lenders may limit how much of your mortgage can be on an interest-only basis, according to Unbiased. And, it’s essential to have a repayment plan for the interest-only portion at the end of the term, warns Mortgageable, to avoid deferring financial pressures.