Independent financial advice - the interest only mortgage

What is an interest only mortgage?

If you want to take independent financial advice with a view to buying a property, you will need to speak to a mortgage adviser. One option you may be offered is an interest only mortgage, i.e. a monthly repayment plan that pays off the interest only on the lump sum you are borrowing. This means that you are not paying any money off the lump sum, and will owe the same amount at the end of the mortgage as you did at the beginning.

Why would I want to pay interest only?

Interest only repayments can be considerably lower than on a repayment mortgage (where you are paying off the interest plus a sum off the initial amount you borrowed). As of October 2006 first time buyers were paying an average £135,000 to get on the property ladder, and the cost is considerably higher in some parts of the country. A first time buyer desperate to get on the property ladder might choose to take independent financial advice about an interest only mortgage because it is at the upper limit of their current budget.

So how do I pay off the lump sum?

The lump sum borrowed will be due for repayment at the end of the mortgage period, e.g. 25 years (or sooner, if you can afford it). Borrowers should have a savings plan, so that they are making monthly repayments on their interest only mortgage and putting money into savings that will eventually be used to repay the lump sum. Independent financial advice suggests possible savings plans might include an endowment, a pension mortgage or an ISA. The important fact to remember is that the savings need to be sufficient to pay off the entire lump sum.

Buy to let

Interest only mortgages are popular with buy to let investors because it is possible to offset interest payments directly against rental income. A landlord owning a number of properties has the luxury of being able to sell one if the lump sum becomes payable. However, if you are a homeowner and your lump sum is due, you don't want to be in the position of having to sell your home in order to pay off your mortgage. You can take independent financial advice to have this more fully explained.

Once I have taken out an interest only mortgage, do I have to stay with it?

You can have a brighter financial future. If you would like independent financial advice about interest only mortgages call our experienced advisers today on 01424 777 156 or e-mail mike.robertson@mraltd.com