Interest Only Mortgages
All Mortgages are a conditional pledge of property to a creditor. Simplified; this means you borrow money from a mortgage lender, they buy your house and you pay it back over a mortgage repayment term.
But how can this happen, if you're only paying the mortgage interest? Interest-only mortgages are a temporary reprieve to paying off the total mortgage value, prolonging the inevitable which is paying off the total mortgage debt. Interest only mortgages do keep the monthly mortgage repayments lower than a repayment mortgage.
But before you decide to buy now and pay later, take a moment to think about the suitability of an interest only mortgage. If you just pay the interest on your home, you will have to locate the additional funds the clear the overall mortgage debt. There are many payment vehicles that enable you to plan for such an event:-
- Endowment mortgage
- Savings
- ISA's
- Investments
- Pension Mortgage
By not making arrangements to pay off the outstanding mortgage loan, you could end up losing your home. But don't forget that a property will typically increase in value over the long term, thus providing equity in the property. But (and a Big But) what will the property market be like when you are ready to sell or have to repay the full mortgage debt?
How to pay off an Interest Only Mortgage
So how do people pay off an interest only mortgage? You don't have to arrange repayment through your mortgage lender. There are several options open to you.
The main options are:-
-
Locate a lump sum of capital: Via inheritance, releasing equity from another property or a business.
-
Convert to a repayment mortgage at a later stage, which may suitable for those who's earnings are low, but are expected to rise in future.
-
Save regularly or investment to build up a lump sum that will pay off the mortgage loan when the mortgage term ends.
-
Alternatively you can sell the mortgaged property to pay off the mortgage loan.
Interest only mortgage tips
There are far too many people in debt because of interest-only mortgages.
Many took advantage of attractive offers to buy now and pay later, but lacked the foresight and will-power to.
Most interest-only payment mortgages are offered on Variable Rate Mortgages, but they can also operate a fixed rate mortgage.
Interest-only payment periods almost never run for the entire term of the mortgage loan. So read the small print.
On the other hand, interest-only mortgages can be a good thing for some people, who want to purchase a bigger/better home.
There's a great deal of fine print to any mortgage. Evaluate your own goals; be vigilant when reviewing the terms on the loan you're considering before acting.