Interest Only Mortgages

An Interst Only Mortgage is most commonly used by people who buy to let. Monthly mortgage repayments are usually quite low as only the interest and not the capital is being repaid. This of course means that the balance of the mortgage is always the same. So say you borrowed £80,000 at the end of your mortgage term your balance would still be £80,000 as it is only the interest that you have been paying back. You will have to consider carefully how you are going to pay off the capital at the end of the mortgage term. Are you going to be investing money during the mortgage term into schemes which will make enough to pay off the capital? How you plan to make enough money to pay off the capital is vital as your home may be at risk if full payment is not made.

New buyers may opt for this kind of mortgage for a while to help keep their monthly payments low enabling them to concentrate on other things. The buyer can then go back to a mortgage where both the capital and interest are paid.

Interest Only Mortgages are very useful for the buy to let market as the interest is paid off while the property is being renovated and hopefully let before they have to start paying back any capital. Remember that failure to pay monthly payments the lender can take your property and sell it to pay off the debt.

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Related glossary terms to UK Mortgages:
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