Interest Only Mortgages

So called due to the fact that you only pay interest to the lender each month. The original loan amount remains the same for the term of the loan. Therefore, suitable investments are planned in order to repay the loan at the end of the term. These investments are arranged at the beginning of the term and they include Pension Mortgages, Endowment Mortgages, PEP Mortgages, ISA Mortgages, and so on.

The amount originally borrowed on Interest Only mortgages does not change because you only pay off the capital at the end of the term. This is done by contributing towards the "Repayment Vehicle" (i.e.: the investment(s)) chosen which should bestow a sufficiently large sum to repay the loan at the end of the term.

Although there appear to be many types of Interest Only mortgages, this is only due to the fact that the name is associated to the relevant investment. Even though the investments vary, the general nature of the Interest Only mortgages remains the same.

Points to Note:

  • Investments are not guaranteed to appreciate so there is a certain amount of risk involved with the Interest Only.
  • If the investment does not provide as good a return as was expected, it may not cover the loan. The onus is then on you to ensure that you can repay the loan at the end of the term.
  • Investments associated with Interest Only mortgages are portable meaning that you can keep the investment, add to them and link them to a new mortgage if you move house.
  • As a result of the original amount borrowed never going down, if you sell your house that amount will need to be repaid.

 

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YOUR HOME MAYBE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE