What is an Interest Only Mortgage?

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.