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
Decorating Tips for Selling Your Property
17 days ago
Selling up? It’s important to make your house as appealing as possible to potential buyers. Good decorating can help with first impressions, and increase the perceived value of your property.
20 Budget-Friendly Activities
25 Aug 2023
With the cost of living affecting so many of us, we have made a list of budget-friendly activities and ideas for you.
Moving and Packing Tips for a Stress-Free Move
21 Jul 2023
Moving soon? It's never too early to get organised! Be prepared and avoid unwanted stress by checking out our list of tips to get you ready for moving day.
What is the UK Inflation Rate?
27 Jun 2023
Inflation simply put, is the increase in the price of something over time. The Office for National Statistics (ONS) tracks the prices of hundreds of everyday items and these items are updated to reflect shopping trends.
Debt Consolidation into a Mortgage
20 Jun 2023
We are often asked if it's good advice to consolidate “unsecured” debt (credit cards and loans etc) into your mortgage, the answer is, sometimes.
Parking Rules Explained
16 Jun 2023
When you’re looking to buy a home, and you own a car, you ideally want to know the rules on parking in the area. Parking rules can be confusing, even for the most experienced of drivers! This is why we have written this blog to help you.
Sources of Deposit to Buy a Property
6 Jun 2023
There are several potential sources you can consider when it comes to getting together a deposit to buy a property. Providing proof of the source of your deposit is a key requirement in the application process and will need to be given to both the lender and the solicitor.
More information
Trusted by
