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.
The most wonderful time of the year can easily turn into the most expensive time of the year. Watching the pennies doesn’t mean that the Christmas festivities have to stop, following a few budgeting tips can mean you still have a special Christmas and don’t go into the new year in debt.
4 days ago
December is usually a less desirable time to buy as many people don’t want to move over the holidays. However, prospective buyers do start to look at this time. Selling your home in winter may require a bit of extra attention to showcase your property at its best.
We look at why mortgage rates increased following the Bank of England's choice to reduce the bank rate, and should you fix now?
30 Oct 2024
On 30th October 2024 the Chancellor, Rachel Reeves delivered the Autumn budget which we had previously been warned would be “difficult”. Below we have summarised the main housing points.
23 Oct 2024
In an increasingly cashless society, money is an intangible concept for children to grasp. In the days of coins and notes, kids could see money as something physical you require to purchase goods and services.
In order to help teach your children about money, we have listed some tips below;
18 Oct 2024
The UK’s chancellor, Rachel Reeves will deliver the Labour government’s autumn budget at the end of the month, we take a look at what could be announced in relation to housing.
Recent research from Halifax has revealed the most sought-after locations for first time buyers in Britain.
The data which was taken from the Halifax House Price Index looked at areas outside of London where those looking to purchase their first property were buying. Despite high property prices and increased rates, these first time buyer hotspots have remained popular.
7 Oct 2024
Taking care of your mental health means looking after your emotional, psychological, and social wellbeing. There are several ways we can practice self-care that will help to improve our physical and mental health. This can help to reduce our risk of illness, manage stress, and boost our energy levels!