Compare interest only mortgages
Whenever you’re looking to buy a home it’s highly likely the mortgage payment will be taking a serious chunk out of your monthly budget. An interest only mortgage can offer you a way to get lower payments, but interest only mortgages need to be treated with caution as, 25 years down the line you could get to your last mortgage payment and… hey presto! You’ll own nothing. You will only have paid the interest - hence interest only mortgage - the original amount borrowed will still be an outstanding debt
What's the point of an interest only mortgage?
Traditionally interest only mortgages have been sold hand in hand with an investment product, which is effectively a separate payment, the two amounts making your total mortgage payment. The job of the investment product being to provide you with enough capital to pay off the outstanding balance in full on the day you make your final mortgage payment. An endowment mortgage was an interest only mortgage with an investment product attached.
Can I have an interest only mortgage without an investment product?
It’s easier to get an interest only mortgage without an accompanying investment product now. However, every day that goes by that you don’t make payments toward paying off your mortgage as well as just paying the interest, it will be harder to fund an investment product that will deliver enough performance to pay off the mortgage capital amount. Even if you pay over £1000 a month to a lender each and every month for 25 years you still won’t own the house at the end of the loan. That’s the risk you’ll be setting yourself up for should you take on an interest only mortgage and forget about a capital payment product to accompany it.
Are interest only mortgages the same as endowment mortgages?
An endowment mortgage is an interest only mortgage with a repayment vehicle (the endowment) attached. Despite early expectations, endowments didn’t always work as well as they were supposed to. Some people were left with not enough money to pay off the capital at the end of the mortgage.
Concerns about the initial selling of endowment mortgages hit the headlines and deregulation soon followed, giving borrowers the right to choose their own repayment vehicle for an interest only mortgage, which can now be anything from an ISA (Individual Savings Account) to a pension plan. Or none at all.
I’ve heard that interest only mortgages are a bad idea. What’s right for me?
If you have little or no chance of getting on the property ladder at all with a capital and interest mortgage, which is a mortgage that includes a fixed payment toward settling the debt with each monthly interest payment, you might find a cheap interest only mortgage could give you a chance to buy a home.
The best interest only mortgages will let you overpay each month, the overpayment coming off the capital amount, which as long as you’re careful and realistic about it, can make an interest only mortgage a versatile and flexible method of financing for your home. Whatever you do though, don't forget that an interest only mortgage is not paying off the amount you have borrowed - you have to do that by either overpaying (not all interest only mortgages allow this) or having a separate investment or savings product.
Experian® - the company behind LowerMyBills – also CreditExpert, which gives you access to your credit report and score enabling you to see what lenders see about you when they make a decision about which financial products or services are available to you.
The LowerMyBills.co.uk mortgage service is provided by BeatThatQuote.com Ltd, an appointed representative firm of Best Value Financial Services Ltd which is authorised and regulated by the Financial Services Authority.
YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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