Interest only mortgages

With interest only mortgages you pay back the interest during the term, simple! You usually make other arrangement for paying back the loan, such as using an ISA. There is a risk attached to this type of mortgage though, the investment might not grow fast enough to repay the loan when its due, so you are literally gambling on the fact that the return on your investment, after tax, will be higher than the mortgage rate at which you are borrowing. It is important that you know who’s responsibility it is to ensure that you have sufficient means of repaying off your mortgage, either you or your lender.

The Advantages to an interest only mortgage.

1. If you are lucky and the gamble pays off then you may have money saved during the term of the mortgage by paying out less each month than you would with a repayment mortgage, or you may have an extra lump sum for your personal use at the end of the mortgage term.

The Disadvantages to an interest only mortgage.

1. If the gamble doesn’t pay off then you will have to extend the mortgage term until you do so.
2. It is important to remember that your home is at risk if you don’t supply a repayment vehicle or put another form of repayment in place. If you fail to make a suitable arrangement then it can result in your lender repossessing your property.

The different types of interest only mortgages.

An interest only mortgage has 3 variations, they are as follows: -

1. A Pension Mortgage.
2. An ISA Mortgage.
3. A Low-Cost Endowment Mortgage.