Interest Only Mortgage

If you’re looking for an affordable option to get on to the property ladder, an Interest-Only mortgage could be something to consider.

What’s an Interest-Only mortgage?
When you take out a mortgage, you agree to pay back the amount borrowed, plus interest, over an agreed period of time. 

With an Interest-Only mortgage, the payment you make to the lender each month amounts to just the interest you owe for that month.  It doesn't include any repayment of the lump sum.

How does it work?
When you take out an interest-only mortgage, you should also make a monthly payment into another investment [e.g. savings account, endowment policy] with the hope that this will generate enough return to pay off the full amount borrowed at the end of the mortgage term.

Pros of ‘Interest-Only’;

• lower monthly payments 
• an affordable route for those with a tight budget to get on the property ladder

Cons of ‘Interest-Only’;

• the amount borrowed will need to be paid at the end of the mortgage term so borrowers must have a repayment plan in place to repay this amount in full
• investment returns are never guaranteed and could fail to deliver enough capital at the end of the term to repay the mortgage

Consider the risks
The risks involved with ‘Interest-Only’ need to be considered alongside the benefits of getting onto the property ladder.  Carefully consider the amount you can afford to repay each month and ensure you have a solid plan in place to repay your mortgage in full.