Interest Only Mortgages

Bestreview

Home/Finance Directory/Mortgages/Interest Only Mortgages

Interest Only Mortgages

Interest Only Mortgage Lenders. Compare Interest Only Mortgages.

Interest-only mortgages are pushed aggressively nowadays by lenders and brokers, but they're not for everyone.

An interest-only mortgage might be a good fit for:

someone whose income is mostly in the form of infrequent commissions or bonuses;
someone who expects to earn a lot more in a few years;
someone who truly will invest the savings on the difference between an interest-only mortgage and an amortizing mortgage, and who is confident that the investments will make money.

Financial advisers don't recommend interest-only mortgages to regular wage earners who take out moderate-size home loans and don't have a strategy for investing the savings.

With an interest-only mortgage loan, you pay only the interest on the mortgage in monthly payments for a fixed term. After the end of that term, usually five to seven years, you either refinance, pay the balance in a lump sum, or start paying off the principal, in which case the payments jump skyward.

With interest only mortgages only the interest is actually paid off with each mortgage payment. The borrower also takes out at the same time, an alternative 'repayment vehicle' (method of paying off the mortgage) such as an ISA, pension plan or an endowment policy.

The monthly repayments do not repay any of the outstanding capital balance. So it is important that the repayment vehicle payments are maintained, otherwise it will not be possible to pay off the mortgage at the end of the term.

Endowment Policies - This is the most common type of interest only mortgage which also provides life assurance cover and a fixed payment for investment. The fixed payments are based on the amount of the loan together with the mortgage term and are designed so that, at maturity, the amount invested and earnings are enough to pay off the mortgage. However - there is no guarantee that, when the endowment matures and 'pays out', the balance will be sufficient to repay the mortgage, the funds success depends on the interest rates.