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What is an Interest Only Mortgage?

joelherbert-wright

An Interest Only Mortgage is a type of mortgage that is available, where the payments only cover the interest on the loan, not the capital (principal) being borrowed. The Capital often has to be paid at the end of the term of the mortgage, or the property can be sold to clear the debt. It is almost akin to paying the minimum payment on a credit card and not making overpayments.


Why should I get an Interest Only Mortgage?

An Interest Only Mortgage ends up being cheaper than the alternative, Capital Repayment, where you actually clear the debt completely at the end of the term.

1) The Payments are lower over the term

2) Allows you to profits elsewhere

3) The Payments remain the same over a period of time.

4) If you have a BTL property, often clients borrow on an Interest Only mortgage, and as the property increases in value they sell the property and pay back the loan.


What are the downfalls of an Interest Only Mortgage?

Interest Only Mortgages allow your payments to be cheaper over the term, but often times a client will get to the end of a term and struggle to pay the outstanding debt bac, as life can get in the way and savings couldn't be made over the period of the time the mortgage was taken out.


You can make overpayments on your Interest Only mortgage and therefore bring your balance down over time, much as you would with a Capital Repayment mortgage. This will clear your mortgage debt down, in the same way a Repayment mortgage would.



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The information contained within this website is subject on the UK regulatory regime and is therefore targeted at consumers based in the UK.

 

We are a credit broker and not a lender. We have access to an extensive range of lenders. Once we have assessed your needs, we will recommend a lender(s) that provides suitable products to meet your personal circumstances and requirements, though you are not obliged to take our advice or recommendation. Whichever lender we introduce you to, we will typically receive commission from them after completion of the transaction. The amount of commission we receive will normally be a fixed percentage of the amount you borrow from the lender. Commission paid to us may vary in amount depending on the lender and product. The lenders we work with pay commission at different rates. However, the amount of commission that we receive from a lender does not have an effect on the amount that you pay to that lender under your credit agreement.

 

Your property may be repossessed if you do not keep up repayments on your mortgage.

 

There will be a fee for mortgage advice, the precise amount will depend upon your circumstances. Your Consultant will confirm the amount before you choose to proceed but we estimate it to be £500.

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