Interest only mortgages

With an interest-only mortgage, you only pay back the interest on the loan to the mortgage provider. This may seem like a cheap option, but you should also be paying simultaneously into an investment vehicle each month.


The aim is to raise enough money to repay the loan in full at the end of the term. People often choose an ISA, pension, or endowment mortgage as the investment.

Remember: some investments will have considerable tax benefits. If unsure, always seek independent financial advice. One important thing to bear in mind is that your loan will not gradually be paid off in time, as it would with a repayment mortgage, and there is no guarantee that the investment will cover the total of your loan.

Some people take out an interest only mortgage, without setting up an investment vehicle or method of repaying the loan in future. Although this is tempting, particularly for a first-time buyer struggling to make repayments or someone doing a large capital raise on their current mortgage, it’s inadvisable to not make a repayment plan.

See also:
Repayment mortgages
Mortgage calculators online
Best buy mortgages

 

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