An interest only mortgage can be an incredibly tempting option, especially as they often lead to cheaper repayments on your home. However, there are things to be cautious of and remember when you go to take out an interest only mortgage. We all want to move home and find the house of our dreams, but sometimes the way that seems easiest can actually end up making things a little harder. So if you are looking to take out an interest only mortgage, or simply want to learn a little more about them, this overview should give you a good idea of what you’re entering.

What is an Interest Only Mortgage?

An interest only mortgage offers buyers a cheaper way to pay their mortgages every month and to purchase a property. This is because buyers are only paying off the interest and not the capital. So, by the end of the mortgage term you will have paid off all of the interest, but none of the capital, leaving that to be paid.

They started out as a mortgage form that was partnered with an endowment plan – a great combination. However, these fell out and the interest only mortgage began to be take out by those who were struggling to afford a regular one.

Associated Risks?

This form of mortgage repayment may appear cheap and easy, but it can be a case of something that is too good to be true – especially if you don’t want to be left with the capital payment at the end. For those taking out interest only mortgages because they were having difficulty with affordability, this was a huge risk. After all, if the price of houses falls, their debt increases. This can often lead to a debt greater than the value of the home. Even if the price of the house increases, the debt will not decrease. It really is a large risk to take.

Positive for the right borrower!

An interest only mortgage is definitely right for you if you plan on paying your entire mortgage back in a few years. If you are financially stable and confident, or even letting a property, then this is the perfect mortgage for you. It’s a short term situation, and not something that you want to take into the long term. So if you are looking for something cheap and affordable but have quick repayment plans, then this is the mortgage type for you.

Just Remember…

Never become comfortable with your interest only mortgage, especially if you have plans to pay it off relatively quickly. It is too easy to become comfortable with certain levels of repayment every month, so it is vital you don’t let yourself slip into this. Always make sure you are financially confident as well, especially since financial success can take a sudden turn for the worst.

Mortgage Advice

An interest only mortgage is great for those who are looking to repay their entire mortgage quickly, but it is important for those who are looking at it as a cheaper option to remember that you are only paying the interest, not the capital.

So make sure you know what you are getting into, that you can afford the repayments, but also that you are comfortable with the fact that your mortgage won’t be fully paid off at the end of the term if you don’t pay the entire thing before then. It is a mortgage to be approached with caution.