Interest Only Mortgages

In this form the mortgage loan is structured so that the borrower only pays the interest payment associated with the loan and does not pay back any of the outstanding capital borrowings. Therefore unlike a Capital Repayment Mortgage the debt is not reduced on a monthly basis. In this form the actual monthly payments are less, however this is solely due to the fact that there are no payments being made to reduce the debt.

In most cases the structuring of the repayment of the loan is left to the borrowers discression. In most cases this will involve some form of investment i.e. ISAs which will run alongside the mortgage with the aim of building up enough capital to repay the mortgage loan. In most cases such schemes are run over a25 year period.

The reasons for this are twofold. Firstly funding such schemes as well as paying interest payments can be expensive and a 25-year term allows time to slowly build up the investment. Secondly the long terms allow the investment time to grow. Of course as with any investment scheme there is a degree of risk and there is a chance that as well as having a surplus at the end of the term the borrower could also end up with a deficit. Before embarking upon such a scheme it is advisable that the borrower seeks the proper advise from a qualified body such as an IFA.

 

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