Interest Only Mortgages
This is where repayments are made up entirely of the interest on the loan. When the mortgage term is complete, the capital originally borrowed is still outstanding.
To cover the balance, borrowers are adviced to make regular contributions into an investment policy alongside their mortgage repayments.
This can be arranged by the mortgage provider, most commonly in the form of an endowment mortgage, an ISA mortgage or a pension mortgage.
With this type of home loan your make monthly repayments are also on the borrowed capital in addition to the interest on the loan. With an interest only loan your repayments are made up of the interest alone. Consequently you do not repay any of the capital until the mortgage term is complete.
Because you are only paying back the interest on the loan, you will pay less each month than you would with a repayment mortgage.
The most important question you may have to ask yourself is; Would you be able to utilise other investments should there be a shortfall at the end of your main policy?
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