With an interest only mortgage, you only pay the interest on your loan to your lender each month; you don’t actually pay off any of the capital that you’ve borrowed until the end of the mortgage term. Whilst this offers borrowers the opportunity to make lower repayments each month, you will still need to make other arrangements for paying back the capital at a later date.
There are potentially a number of benefits associated with interest only mortgages which have made them a popular choice amongst home buyers.
Whilst there are a number of benefits with taken out interest only mortgages, it should be taken into consideration that you must have some strategy on how you intend to repay the capital from the loan at the end of its term.
As part of a repayment plan it is also possible to split a mortgage between two different repayment methods, interest only and repayment. This involves repaying part of the mortgage balance as repayment, and the remaining part as interest only. This will help you in reducing the amount of mortgage that you owe at the end of your term, although it is likely you will still have to repay some capital at the end.
Repayment vehicles are used in order to reassure lenders that you will be able to repay the remaining capital at the end of an interest only loan.
Examples of typical repayment vehicles include:
Your lender is likely to assess how likely it is that your repayment vehicle will be able to pay off the remaining capital at the end of your interest only mortgage.
If you do not own any repayment vehicles, and you are concerned as to how you intend on repaying the remaining capital on your mortgage, there are a number of alternative methods you can pursue.
Some of these options may not necessarily be suitable for you depending on your personal situation. Our team of mortgage specialists can assist in giving you advice and guidance in creating a repayment strategy to ensure that you fully pay off your mortgage.
Like most financial products, an interest only mortgage is not likely to be suitable for everyone. The relevance of an interest only mortgage to you will depend on your personal circumstances, which is why you should contact a mortgage broker give you advice on whether you should apply for an interest only mortgage. Interest only mortgages tend to be favourable if:
A mortgage broker can analyse your personal situation and offer independent unbiased advice and guidance to find an interest only mortgage that you can afford, and that fulfils your mortgage goals.
We work with the majority of UK interest only mortgage lenders to bring you exclusive and leading rates tailored to your specific financial situation and needs. If you would like to compare interest only mortgages, or have any queries, why not call us today for a free initial consultation.