There are two main mortgage umbrellas under which all mortgages come, and these are known as repayment mortgages and interest only mortgages. An interest only mortgage is often classed as something of a risk compared to repayment mortgages, and this is because the monthly repayment that you make is applied only to the interest on the loan, and none of the repayment goes towards the actual principle loan balance.
Many lower income people and first time buyers decide to opt for an interest only mortgage, and this is because the monthly repayments on this type of mortgage are lower than with a repayment mortgage, which means that homeowners can keep their monthly outgoings down. This is one of the main attractions of an interest only mortgage.
However, the downside is that with an interest only mortgage your repayments will only be allocated to the interest that you owe on your loan, so your principle loan balance will remain untouched over the term of the loan. This means that you will not see your mortgage balance come down over the term of the loan.
The nature of this type of mortgage means that you will also have to have another sideline investment running alongside your mortgage, as you will have to use this to repay your principle loan balance at the end of the mortgage term. However, you may find that some lenders are unwilling to offer interest only mortgages due to the increased risks associated with them.
Interest only mortgages are risky, and you do need to familiarise yourself with the benefits, the risks, and the nature of this type of mortgage. You may find that taking on an interest only mortgage is your only way onto the property ladder in light of the high house prices and high interest rates at the moment. However, at the same time you need to remember that the longer term risks could make this an unsuitable mortgage.
If you are interested in an interest only mortgage you should find a number of lenders that offer interest only deals, and as with any other mortgage or loan you should compare the rates of interest on offer as well as the eligibility requirement, term and conditions, and monthly repayments. You can then find the most competitive interest only mortgage to suit your needs and circumstances.
As most financial experts will advise you, make sure that you weigh up the pros and cons of the interest only mortgage before you make any commitment. Also bear in mind that whilst you may save money on your monthly repayments, your actual mortgage loan will not go down over the term of the mortgage and you will still have to spend money on a sideline investment to run alongside the mortgage to try and raise the money to pay your principal loan balance off at the end of the mortgage term.
Popularity: 32% [?]