An Interest Only mortgage is one that only pays off the interest on the loan and doesn’t pay off ANY of the initial loan amount...
Be sure to get your figures right with our mortgage calculator
Who should consider an Interest Only mortgage
Although to many people the Interest Only mortgage seems to have nothing to offer other than the possibility of future disaster there are some circumstances where it may suit a borrower.
For those who cannot afford large mortgage repayments now but are certain that at a point in the future they will be able to the Interest Only mortgage enables them to borrow enough money to buy the house that they want now. They may later switch to a standard mortgage when they are able to meet the repayments with more ease.
Borrowers who have a financial arrangement that will definitely pay off the sum of the initial loan perhaps with an amount left over too may wish to use their money in that way and only pay back the interest on the loan for the house.
The Interest Only mortgage tends to be more portable so those who want to move their mortgage from property to property as they sell and move on may find it easier to do with an Interest Only mortgage although many standard mortgages offer a high degree of portability too these days.
The Interest Only mortgage has some short-term uses which enable buyers to borrow a relatively large amount and pay back the interest only making those repayments relatively low. For those with a very clear short term plan that only means that they will live in a property for a short amount of time in an area where house prices are high and there always seems to be demand the Interest Only mortgage might be used as a financial tool in the long term plan.
The Interest Only mortgage alone does NOT suit the buyers and borrowers who want a secure guaranteed method of making regular monthly payments that will leave them completely debt free and a home owner in a set number of years