Interest only mortgage

As the name suggests, interest only mortgages only pay back the interest on the loan to the mortgage lender and not the actual loan amount. This may seem like a cheap option, but you should also be paying simultaneously into an investment vehicle each month.

The upside of an interest only mortgage is that the monthly cost is considerably lower than for a comparable repayment mortgage.

The downside of an interest only mortgage is that at the end of the mortgage term you still owe the original amount you borrowed.

The aim is to raise enough money to repay the loan in full at the end of the term. People often choose an ISA, pension, or endowment mortgage as the investment.

Some people take out an interest only mortgage, without setting up an investment vehicle or method of repaying the loan in future. Although this is tempting, particularly for a first-time buyer struggling to make repayments, or someone doing a large capital raise on their current mortgage, it’s inadvisable to not make a repayment plan.

Need more help or advice?
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