Interest Only Mortgages: 10 Things You Absolutely Need To Be Aware Of
1. Having an interest only mortgage will ensure that you only pay the interest which has built up on your home loan each month, in contrast to a common repayment mortgage where you repay part of the actual capital each and every month combined with the interest to ensure that at the end of the term you will have paid back your mortgage entirely.
2. The complete capital amount (i.e. the amount you paid for your property) is still outstanding at the end of an interest only mortgage term so it has to be paid for through some other means.
3. For this specific reason interest only mortgages were as a rule generally sold alongside an additional product, such as an endowment policy, which is a product that you pay into once a month and which then invests that money in the stock market. With any luck ,, when your mortgage has reached its end, your endowment plan will end up being worth enough to take care of the outstanding capital that you have to repay.
4. If you cannot manage to make the higher monthly payments of a repayment mortgage an interest only mortgages can be a great way to get you on to the property ladder. Then, when are a bit more economically secure you can switch to a repayment mortgage and commence paying off the debt.
5. In locations where property prices tend to be high, interest only mortgages are worth considering simply because they can in fact turn out to be cheaper than renting. However, you should always attempt to either switch to a repayment mortgage when you can or make sure you have another plan for repaying the capital at the end.
6. Interest only mortgages are also a great possibility for individuals who are running their own business or who have unpredictable wages. In these instances the flexibility that comes along with an interest only mortgage can be really welcome.
7. Some loan companies are now giving the option of taking out a part interest-only and part repayment mortgage. This allows you to steadily lessen the interest only aspect.
8. Interest only mortgages are popular with property investors as the interest payments are tax-deductible. They do not intend to actually live in the property, but, hope to profit from it via an increase in its value or by getting rent of more than the interest payments and any other costs.
9. As you don’t repay any of the capital during the course of the mortgage, an interest only mortgage will cost you more in the end because you are paying interest on the entire amount for the entire time. With a repayment mortgage your monthly payments are made up of a great deal of interest and just a little capital repayment at the start but the balance gradually shifts until you are primarily repaying capital with not much interest.
10. Lenders may ask for larger deposits as they think interest only mortgages are more risky than repayment ones. Also, they may charge a higher interest rate on interest only mortgages.
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