As the name suggests, an interest only mortgage requires that you only pay the interest element of your mortgage in your monthly mortgage repayment. Crucially, there is no repayment of capital during the mortgage term. This has the benefit of reducing your monthly payments, although making the interest-only mortgage payments more affordable now can come with some significant disadvantages further down the line.
When considering an interest-only mortgage, remember that at the end of the mortgage term you will be required to repay the loan capital in full. You therefore need to either make provision for this capital repayment by setting up a separate savings or investment plan. If you can’t do this you will probably need to sell your home to repay the mortgage at the end of the loan period.
Most people are buying a house for them to live in and therefore the need to sell your home at the end of the mortgage term is unlikely to be a sensible or desirable option. You should therefore have a plan for repaying the loan at the end of the term or before. Also, it may be prudent to protect your family by taking taking life insurance to cover the mortgage sum in the event that you were to die, leaving them with a large mortgage still owing on your home.
It should also be noted that with a repayment mortgage over say 25 years, the interest you are paying is calculated every month based on the total outstanding mortgage sum. With a repayment mortgage, the outstanding mortgage sum is reducing over time, slowly at first but faster after the first 5 or 10 years of say a 25 year mortgage term. On an interest-only mortgage the outstanding mortgage sum stays the same throughout the loan term. You will therefore pay more interest on an interest-only mortgage than with a repayment mortgage.
For more information contact us or speak to a mortgage adviser on 01628 507477.
Recent posts
With the stamp duty relief ending in England and Northern Ireland, we have listed the top 10 cheapest areas for first-time buyers as published by Rightmove.
Are you looking to purchase your first home but unsure where to begin? Here are some tips to get you started.
Choosing which fixed rate to go for has been a dilemma for many of our clients so far this year. There really isn’t a right or wrong answer, but below we will look into the pros and cons of a two-year and five-year to help you make the right decision for you.
Best UK Mortgage Rates this Week
14 days ago
Here are the lowest fixed mortgage rates of the week, available to first-time buyers, home movers, buy-to-let, and those remortgaging.
Call us for more information: 01628 507477 or email: team@mortgagerequired.com.
Stamp Duty Rush as Deadline Looms
15 days ago
According to Rightmove, a whopping 500,000 UK homebuyers are rushing to finalise their home purchase before the new Stamp Duty rules change in April.
The UK government is introducing new rules for Energy Performance Certificates (EPCs) that will impact landlords. Here's a summary of the key changes
Should I buy or rent in 2025?
22 days ago
Choosing to buy a house is one of the biggest decisions you are likely to make in your lifetime. There are many factors that influence a house purchase, these include: finances, housing market conditions, and mortgage rates.
ISAs: what are they, and which one is for me
25 days ago
Since being launched back in 1999 Individual Saving Accounts (ISAs) have been very popular for those wanting to put money into savings. There are four types of ISA, and the majority allow flexible saving and the ability to withdraw funds easily. There are financial penalties on certain products, these usually pay the most interest.
More information
Trusted by
