Is an Interest Only Mortgage as Good as it Sounds?
An interest only mortgage sounds great, doesn’t it? The trouble is that like with any mortgage, the actual bulk of the money that you borrow needs to be paid back with an interest only mortgage too. You will be hard pushed to notice much difference from traditional mortgages with interest only mortgages in the early years of a mortgage repayment because most of what needs to be repaid then is interest anyway. Also, sadly, not paying off the bulk of your mortgage early on will mean that you will eventually pay more interest later on. Think of an interest only mortgage as a stay of execution then. It may allow you to save a little early on so you can afford to pay off more at a later date.
An interest only mortgage is not a new thing. It’s been around for a while and was initially something aimed at well-heeled property investors. The idea was that they could pay off a basic amount from their mortgage at first whilst they ploughed money into other investments; these would hopefully make them a profit so they could later have money to pay off installments on the initial mortgage borrowed too. Today it’s a seller’s market, with many potential buyers seeking fewer houses; that means that sellers can charge higher prices, pricing many out of the mortgages. Interest only mortgages are a lifeline for buyers in these times. Sometimes they’re the only way people can afford to buy a house at all, while they get some savings under their belt.
The monthly repayments on an interest only mortgage obviously increase when you borrow a larger amount of money. The money you can hold back on an interest only mortgage which you would have to pay on a traditional mortgage can make you a much greater amount in a high interest account or traded on the Stock Market. Invest well and an interest only mortgage can be a really intelligent use of your money. Of course, there are risks in this, bit if you are a property investor looking at buying several properties, they chances are that you have a little money to play around with and in that case an interest only mortgage could be the very thing you are looking for.
Most interest only mortgages are offered on adjustable interest rates, although you can find fixed rate interest only mortgages. You will need to look carefully at different lenders and their interest rates before deciding on the right interest only mortgage for you. Try to take a long term view and weight up what your monthly repayments will be and what your eventual repayment total will be.
Remember that the period of interest only repayments does not run for the whole of the mortgage repayment period and eventually, even with an interest only mortgage, you will need to repay the main bulk of money that you borrowed. That is the point at which your monthly repayments will rise, so you need to be prepared for that and make sure you can afford these repayments too.
Please read some of our other interesting articles on mortgages below:
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