Interest Only Mortgages: Ten Things You Ought To Be Aware Of

1. Having an interest only mortgage will mean that you simply pay the interest which has built up on your property loan every month, in contrast to a classic repayment mortgage where you repay a portion of the capital each month together with the interest so that at the end of the period you will have paid back your mortgage completely.

2. The total capital amount (i.e. the amount you paid for your property) is still left at the end of an interest only mortgage term so it has to be paid for by some alternative method.

3. For this particular reason interest only mortgages were as a rule always marketed alongside a further product, such as an endowment plan, which is a product that you pay into month-to-month and which then invests that cash in the stock market. With any luck ,, when your mortgage has reached its end, your endowment policy will end up being worth enough to take care of the outstanding capital that you have to repay.

4. If you can’t afford to make the larger monthly payments of a repayment mortgage an interest only mortgages can be a fine way to get you on to the property ladder. After that, when are a bit more financially secure you can switch to a repayment mortgage and commence reducing the debt.

5. In regions where property prices are higher, interest only mortgages are worth considering simply because they can basically work out less expensive than renting.  Nevertheless, you should always attempt to either change to a repayment mortgage the moment you can or make sure you have a further plan for paying back the capital at the end.

6. Interest only mortgages are also a very good opportunity for people who are self employed or who have unpredictable pay. In these types of cases the overall flexibility that comes with an interest only mortgage can be really welcome.

7. Some lenders are now offering the option of getting a part interest-only and part repayment mortgage. This enables you to steadily reduce the interest only portion.

8. Interest only mortgages find favour with buy to let investors as the interest payments are tax-deductible. They do not intend to ever reside in the property, but, expect to gain from it either through an boost in its worth or by getting rent of more than the interest payments and any other costs.

9. As you don’t repay any of the capital during the course of the mortgage, an interest only mortgage will cost you more in the end because you are having to pay interest on the entire amount for the whole time. With a repayment mortgage your monthly payments are composed of a lot of interest and just a little capital repayment at the beginning but the balance gradually changes until you are mostly paying back capital with not a lot of interest.

10. Lenders may ask for larger deposits as they think interest only mortgages are more risky than repayment ones. Also, they may charge a higher interest rate on interest only mortgages.