UK Mortgages: Interest Only Mortgages

Interest Only mortgage loan

With an interest only mortgage home loan, your monthly payments to the lender cover only the interest on the loan (i.e., they don't repay any of the capital). The full amount of the loan has to be repaid to the lender at the end of the term. To ensure you can make this final payment, you invest additional funds in investments, which are designed to generate Medical Health Care insurance enough (preferably more than enough) capital to repay the loan at the end of the term. We can help calculate your monthly mortgage interest only payment, with our mortgage calculator.

On the plus side, you can choose from a variety of investment vehicles, some of which can have tax advantages. And should you move or re-mortgage, your investment vehicle can usually be reallocated to the new mortgage.

However, unlike a repayment mortgage, the total amount of your debt does not reduce over time. And there is no guarantee that your chosen investment vehicle will grow sufficiently to repay your loan (although you can usually top up your contributions to investments as you go along if this looks likely to be the case).

Interest only mortgages are available with Buy to Let property. In fact it is typical to use interest only options when buying Buy-to-let property

Endowment

With this repayment option, you pay the interest on your home loan to the lender, plus additional payments to an insurance company to fund a savings plan. This aims to generate sufficient funds to pay off the capital at the end of the mortgage term. Unlike a repayment mortgage, the amount of debt doesn't reduce over time and there is no guarantee that your endowment policy will cover the cost at the end of the term.

You can keep your policy if you move house or re-mortgage your current property and its life assurance aspect ensures that the loan is paid off should you die before the end of the term. However, the performance of your endowment is determined by the strength of the investment and you may have to review the policy to ensure that sufficient funds are available to cover the loan at the end of the agreed term.

This option is available on UK & Overseas Property and buy-to-let mortgages, home equity loans and when buying property in Spain.

Pension

With this repayment option, you're required to pay the interest on your home loan to the lender, plus additional payments to a personal pension fund intended to provide a tax-free lump sum to pay off the home loan amount.

The lump sum is payable on retirement, your loan term may be more than 25 years, depending on your age now and when you plan to retire. Poor performance of your fund could also result in insufficient funds being available to repay the loan and provide you with adequate income for your retirement.