Interest-only payments
A large proportion of secured borrowing is repaid by monthly payments that combine interest with a repayment of capital. In such cases, a client can reduce the payments if the creditor agrees to accept payment of only the interest without any capital repayment. Creditors need to be persuaded that a request to make interest-only payments is not just a delaying tactic or an excuse for being unable to pay anything. If a client can afford to pay the interest which is accruing on an agreement, you are not asking for anything that is out of the ordinary or generous.
Payments towards the capital can be resumed if the client’s financial circumstances improve in the future. Some creditors are prepared to wait until the property is sold for the capital to be repaid. Creditors must be satisfied either that the arrangement is temporary and the client will resume making the full contractual payments or they will be able to repay the capital in some other way.
Paying interest only is appropriate if the client cannot afford to pay both the interest and capital. Some mortgages allow for a ’payment holiday’ of a couple of months. If this is not applicable and/or not appropriate, the lender might consider an interest-only arrangement as an alternative.
It cannot be used for endowment mortgages as the payments are already interest only.