1. Having an interest only mortgage will mean that you just pay the interest that has accrued on your home loan every month, instead of a common repayment mortgage where you repay some of the capital each and every month together with the interest making sure that at the end of the period you will have paid back your mortgage entirely.
2. The complete capital amount (i.e. the price you paid for your property) is still outstanding at the end of an interest only mortgage term so it has to be paid for through some alternative method.
3. For this particular reason interest only mortgages were in the past generally marketed together with an additional product, such as an endowment plan, which is a product that you pay into month-to-month and which then invests that money in the stock market. Hopefully, when your mortgage has reached its end, your endowment plan will be worth enough to take care of the outstanding capital that you have to pay back.
4. In the event that you can’t manage to make the higher monthly payments of a repayment mortgage an interest only mortgages can be a very good way to get you on to the property ladder. Subsequently, when are a bit more financially safe you can change to a repayment mortgage and begin repaying the debt.
5. In places where property prices are high, interest only mortgages are worth considering simply because they may actually turn out to be cheaper than renting. However, you should always try to either change to a repayment mortgage as soon as you can or ensure you have another strategy for repaying the capital at the end.
6. Interest only mortgages are also a very good possibility for men and women who are self-employed or who have irregular salaries. In these types of instances the flexibility that comes along with an interest only mortgage can be very welcome.
7. Some loan companies are now giving the option of applying for a part interest-only and part repayment mortgage. This enables you to steadily lower the interest only part.
8. Interest only mortgages are popular with property investors as the interest payments are tax-deductible. They do not intend to actually reside in the property, but, expect to gain from it via an boost in its worth or by receiving 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 as you are paying interest on the whole amount for the whole time. With a repayment mortgage your monthly payments are composed of a lot of interest and a little capital repayment at the start but the balance steadily changes until you are mainly repaying capital with not very much 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.
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