Interest Only Mortgages: Top Ten Things You Should Know
Interest Only Mortgages: Top Ten Things You Should Know
1. Having an interest only mortgage will mean that you only pay the interest that has accrued on your property loan every month, compared to a standard repayment mortgage where you repay some of the capital every month along with the interest so that at the end of the period you will have paid back your mortgage totally.
2. The total capital amount (i.e. the price you paid for your home) is still left at the end of an interest only mortgage term so it has to be paid through some other method.
3. For this specific reason interest only mortgages were in the past always marketed together with a further product, such as an endowment plan, which is a product that you pay into month-to-month and which then invests that cash in the stock market. With any luck ,, when your home loan has reached its end, your endowment plan will end up being worth enough to take care of the outstanding capital that you have to pay back.
4. If you cannot manage to make the larger monthly payments of a repayment mortgage an interest only mortgages can be a fine way to get you on to the property ladder. After that, when are a little bit more financially safe you can change to a repayment mortgage and begin repaying the debt.
5. In locations where property prices are higher, interest only mortgages are worth taking into consideration because they can actually turn out to be cheaper than renting. However, you should always attempt to either switch to a repayment mortgage the moment you can or make sure you have some other plan for paying back the capital at the end.
6. Interest only mortgages are also a very good opportunity for individuals who are running their own business or who have unpredictable pay. In these instances the overall flexibility that comes along with an interest only mortgage can be really acceptable.
7. Some loan companies are now giving the option of applying for a part interest-only and part repayment mortgage. This enables you to gradually decrease the interest only aspect.
8. Interest only mortgages find favour with buy to let investors as the interest payments are tax-deductible. They do not intend to actually reside in the property, but, hope to gain from it either through an boost in its worth or by getting rent of more than the interest payments and any other expenses.
9. As you don't repay any of the capital throughout the course of the mortgage, an interest only mortgage will cost you much more in the end because you are having to pay interest on the whole amount for the whole time. With a repayment mortgage your monthly payments are made up of a great deal of interest and a little capital repayment at the start but the balance gradually shifts until you are mainly paying back capital with not a lot of 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.