Interest Only Mortgages

Interest only method…

Monthly payments to the lender consist of interest only and the outstanding loan remains the same. The mortgage will come payable at the end of the term. You can make payments to a separate investment with the aim of producing enough capital to repay the mortgage in full at the end of the term. There are a number of different investments that can be used. You can also use a combination of them. Not every investment vehicle is accepted by lenders, those commonly used are ISA, Endowment or Pension.

Advantages:

• Investment vehicle may have built in life cover(Endowment)
• Variety of investment vehicles and funds..

Disadvantages:

• The Repayment of the mortgage is entirely dependant on the performance of the investment vehicle. There is a risk that you will not have enough capital to repay the mortgage at term end.
• Payments to the investment vehicle may need to be increased if returns are low.

Part and Part

You can combine the two repayment methods, this is commonly used with people moving home who have existing investment vehicles but want a guarantee that some of the mortgage is repaid. Not all lenders will accept a combination of the two methods.