Guide to Interest Only Mortgages
Here is a useful guide to interest only mortgages. An interest
only mortgage is one where your regular payments only go to pay
off the interest on the money you borrow. You will invest to pay
off the capital sum at the end of the mortgage term.
An interest only mortgage means your monthly payments cover
only the interest on the loan. They do not pay off the amount you
owe. So, at the end of the mortgage term, assuming you have made
all the interest payments, you will owe the same amount that you
borrowed at the beginning. You need to have a lump sum available
to pay the mortgage back in one go at this time.
An interest only mortgage stays the same throughout the
mortgage term. Interest and a premium to an investment scheme are
paid monthly. At the end of the term, the proceeds from the
investment vehicle are intended to repay the mortgage. The amount
will depend on the performance of the investment scheme. If you
choose an interest-only mortgage you are responsible for ensuring
that you have sufficient funds available to repay your mortgage
at the end of the term.
With this type of mortgage you only pay the interest accrued
on the mortgage each month. It is usual for the borrower to take
out a savings or investment plan at the same time as applying for
the mortgage; this could be an ISA, Pension or Endowment
Endowment policies used to be a popular way to build up funds
to repay the capital of interest-only mortgages. However, some
people have found these policies haven't built up enough money to
pay off the full mortgage amount at the end of the mortgage
Make sure you make arrangements to pay off the loan when the
mortgage ends. If you don't, you could lose your home.
The main advantage to an interest only mortgage is initially
seen in the payments you make to your lender. The fact that you
will only be repaying your interest here means that your monthly
payments will be much lower than they would be for a repayment
If your investment does not give you good enough returns, you
won't have enough money to repay the capital owed. So, it's vital
to take good and qualified advice before buying an interest only
product and then to track your investment progress on a regular
You also need to consider the fact that the rates you get for
an interest only mortgage may not be as favourable as those on
offer for repayment mortgages.
You may freely reprint this article provided the author's
biography remains intact:
About The Author
John Mussi is the founder of Direct Online Loans who help UK
homeowners find the best available loans via the http://www.directonlineloans.co.uk
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