A Mortgage Now - Interest Only Mortgage
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What is an interest only mortgage? |
| Mortgages are normally set up on a full capital repayment basis. In other words each month you pay a little of your initial loan back as well as servicing your mortgage interest. In this way you gradually pay off your lending during the term of your loan. Under an interest only contract you only service the interest on your loan and are repaying no capital. This type of arrangement was common in the 80’s when endowment savings plans were purchased to run alongside your mortgage and build up a capital value to repay the interest only mortgage at the end of the term. During the 90’s it became clear that borrowers could no longer rely on these savings plans to build up enough capital to cover their mortgage and capital repayment mortgages became the recommended option. |
What are the disadvantages of an interest only mortgage? |
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In recent years we have seen a number of clients see an interest only mortgages as a less expensive monthly option in buying their own home. This is not a wise option – if you are not paying off the capital you are not ‘buying’ the property. |
Ways to pay off interest only mortgages |
Lenders will have set rules on what they will and will not accept as repayment vehicles for interest only arrangements. Loan to value will plan a big part in their decision.
Here are some of the common ways of repaying your capital that may be acceptable to your Lender.
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