What is an Interest Only Mortgage?
Interest only mortgages are similar to lifetime mortgages, where you receive a cash lump sum secured against your home. However, unlike lifetime mortgages, you make regular interest payments on the amount borrowed.
Interest only mortgages are more suited to individuals who have a steady ongoing income, for example from a pension, from which they can afford to make ongoing interest payments.
Advantages of Interest Only Mortgages
Because the interest charge on the amount borrowed is paid off, and is not added to the amount outstanding, then capital which must be repaid on death does not change. As a result, your family will still receive a reasonable inheritance when you die.
The amount available as a cash lump sum may be substantialy larger to younger customers. This is because there is no added risk for the lender of negative equity when the customer dies and the amount borrowed (including interest) is due to be repaid.
Disadvantages of Interest Only Mortgages
The main disadvantage of an interest only mortgage compared to a lifetime mortgage or home reversion scheme, is that regular interest payments must be made until the amount is repaid, usually when you die. Such schemes are therefore more suited to individuals with a reasonable income in retirement.
Depending on the specific arrangements of the scheme, and the type of interest rate given, i.e. tracker, fixed rate etc, the interest payments you are required to make may fluctuate year after year. As a result, you may find that you struggle to make payments at times.
Interested?
If you wish to find out more about interest only mortgages, and your eligiblity for an interest only mortgage, then complete the following form and we will arrange for a qualified professional to call you to discuss your next move.
See our terms and conditions and privacy policy at the following link