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What is a part-interest-only and part-capital-repayment mortgage?
A part-and-part mortgage, sometimes called a part repayment and part interest-only mortgage, splits your mortgage into two sections.
One part of the mortgage is arranged on a capital repayment basis, which means your monthly payments gradually reduce the amount you owe as well as covering the interest. The other part is arranged on an interest-only basis. Your monthly payments cover the interest charged on this portion of the mortgage, but the capital balance is not automatically reduced. You therefore need an acceptable repayment strategy to clear the remaining interest-only balance at the end of the mortgage term.
Part-and-part mortgages can provide a useful middle ground between a full repayment mortgage and a full interest-only mortgage. They can reduce monthly mortgage payments while ensuring at least some of the mortgage debt is gradually repaid.
Trinity Financial's mortgage brokers can compare part-and-part mortgage options from high-street banks, building societies, specialist lenders and private banks.
What are the benefits of a part-and-part mortgage?
One of the main benefits of a part-and-part mortgage is lower monthly payments compared with putting the whole mortgage on capital repayment. At the same time, because some of the borrowing is on repayment, your mortgage balance should gradually reduce. The potential benefits include:
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Lower monthly mortgage payments than a full repayment mortgage.
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Some of the mortgage debt is automatically repaid each month.
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The ability to choose how much borrowing is repayment and how much is interest-only, subject to the lender's criteria.
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It can help borrowers who have a credible future repayment strategy but do not necessarily want their whole mortgage on interest-only.
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It may help high earners with bonuses or variable income manage their monthly commitments.
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It can suit borrowers who expect to use investments, savings, pensions or the future sale of a property to clear the interest-only balance.
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Some borrowers can make overpayments to reduce the outstanding balance more quickly, subject to the terms of their mortgage.
Part-and-part mortgages can be particularly useful with larger mortgages, where the difference between full repayment and interest-only monthly payments can be significant.
How does a part-and-part mortgage work?
Imagine you need a £1 million mortgage. Instead of putting the whole £1 million onto capital repayment, you could potentially structure the mortgage as:
- £500,000 capital repayment
- £500,000 interest-only
The repayment portion would gradually reduce during the mortgage term. On the £500,000 interest-only section, you would generally pay only the interest each month. The £500,000 capital balance would still need to be repaid at the end of the term unless you reduce it through overpayments or another agreed method.
The exact split does not normally have to be 50/50. Depending on the lender and your circumstances, it may be possible to have a larger or smaller proportion on interest-only.
Use our part-and-part mortgage calculator below to see how changing the interest-only and repayment portions could affect your estimated monthly payments.
Why choose part-and-part instead of full interest-only?
A full interest-only mortgage can provide lower monthly payments, but the original mortgage balance generally remains outstanding unless you make capital repayments separately.
A part-and-part mortgage means you are reducing at least some of the debt automatically.
For borrowers who do not want—or cannot qualify for—a completely interest-only mortgage, part-and-part can therefore provide a useful compromise.
It may also reduce the size of the repayment strategy needed at the end of the term because only the interest-only element needs to be cleared separately.
Why choose part-and-part instead of a repayment mortgage?
A full capital repayment mortgage provides greater certainty that the mortgage will be repaid by the end of the agreed term, provided all required payments are made.
The disadvantage is that monthly payments can be substantially higher than an interest-only structure, particularly on larger loans.
Part-and-part allows borrowers to keep some of the benefits of a repayment mortgage while potentially reducing their monthly commitment.
This may appeal to borrowers who want more flexibility with their monthly cash flow or would prefer to direct some of their money towards pensions, investments, businesses or other financial commitments.
It is important to understand that investments can fall as well as rise and a lender will need to be satisfied with the proposed repayment strategy.
Part and Part Calculator
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Who could benefit from a part-and-part mortgage?
Part-and-part mortgages may be considered by a wide range of borrowers, including:
High earners
Professionals, executives and other high earners may have a significant proportion of their annual earnings paid through bonuses, commission or other variable income.
They may prefer a lower regular monthly mortgage commitment and use bonuses or other lump sums to reduce the mortgage over time.
Borrowers taking a £1 million-plus mortgage
Part-and-part mortgages are often considered when arranging larger mortgage loans because putting the whole debt onto capital repayment can produce a sizeable monthly payment. Our brokers regularly arrange £1 million-plus mortgages and can compare repayment, interest-only and part-and-part structures.
Call Trinity on 020 7016 0790 to secure a part-interest-only and part-capital-repayment mortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage
No. A full interest-only mortgage pays only interest on the entire balance. With a part-and-part mortgage, one portion is interest-only, and another portion is on a capital repayment basis. With part-and-part, you repay some of the mortgage each month, but you can also make lump-sum overpayments if you receive a bonus or overpay a small amount each month. You can do this through the lender's apps.
Yes, but only on the repayment section of the mortgage. The interest-only balance normally remains outstanding unless you make additional capital payments.
Many lenders allow mortgage overpayments, although limits may apply, particularly during a fixed-rate period. Check your mortgage terms before making additional payments. Most lenders allow you to overpay up to 10% of the outstanding balance each year without charge.
Generally, monthly payments are lower than they would be if the same mortgage were entirely on capital repayment because you are not making scheduled capital repayments on the interest-only portion. With most lenders, borrowers can make up to 10% overpayments each year without having an early repayment charge.
Potentially, yes. Depending on the lender, fixed-rate and tracker mortgage products can often be arranged on a part-and-part basis where the borrower meets the relevant criteria. Some lenders allow you to take part of a mortgage on a fixed rate and the remaining amount on a tracker.
No. Lender policies vary, and even lenders offering interest-only mortgages can have different rules about how much borrowing they will allow on an interest-only basis.
The interest-only component of a part-and-part mortgage increases the lender’s risk. As such, the eligibility criteria is more strict than for a repayment mortgage. You need a deposit, such as 15% of the purchase price, as the maximum loan-to-value ratio for this type of mortgage is typically 85%.
You also need to pass the affordability checks. Many banks and building societies only accept applicants looking for interest-only with higher earnings, such as £75,000, or equity in your home.
Aaron Strutt's Mortgage News
