Interest only mortgage
admin

Interest Only Mortgage

Interest only mortgage require you to make monthly payments to the mortgage lender in order to pay off the interest on the amount borrowed. In addition to the interest only mortgage you need to establish a separate long term repayment strategy.

This could include an investment plan, inheritance or disposing of the property in the future.

The investment plan required to pay off the mortgage usually comes in one of three forms; an ISA (individual savings plan), a pension or an endowment. This investment does not have to be provided by the mortgage lender.

Interest only mortgages can also be changed to a repayment mortgage in the future. Though it is with noting that main lenders have tightened their criteria in recent years regarding interest only mortgages. It is important to seek advice if you are looking as this as an option.

Advantages

  • You can choose an ‘investment vehicle’ that is tax efficient.
  • If the investment growth rate exceeds those estimated at outset you may be able to pay off your mortgage early or receive a lump sum at the end of the repayment period, in addition to paying off your mortgage.

Disadvantages

  • No guarantee that you will have sufficient funds to pay off the mortgage at the end of the repayment period, as the investment could perform below that assumed at the start.
  • No all mortgage lenders now offer interest only mortgages.
  • Your debt remains constant throughout the mortgage period.
  • Some forms of investment may incur a penalty fee if you stop paying premiums.