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Interest Only Mortgages

When affordability is an issue in the short term, an interest-only mortgage is one possible solution that may enable a borrower to climb onto the property ladder a little earlier than might otherwise have been the case.

Interest only mortgages, as the name suggests, are agreements in which the borrower pays off only the interest and not the capital sum, until the interest is paid after which the capital amount is obviously still owed. By separating the two in this way the policy creates more options and opens up opportunities for more people.

From the 1970s onwards interest only mortgages became popular as they were tied in with endowment plans which released a large sum that could be used to offset the capital debt. As the performance of such plans diminished, however, they fell very much out of favour and the interest-only mortgage became the refuge of the hopeful rather than a viable option for borrowers with a repayment plan. The result was that many borrowers were paying off the interest without any real hope of ever being able to meet the actual cost of the property itself, leading to repossessions and resultant misery for so many households.

Today lenders have been encouraged to take a harder line when issuing interest only mortgages, insisting on down payments of up to 50%, and always of at least 25%, before making the option available to borrowers.

Interest only mortgages are, of course, an option that are more expensive to the borrower than the alternatives. The reason for this is that a mortgage which includes capital repayments from the outset will see the outstanding capital sum, upon which all interest is paid, steady diminish as the agreement progresses. Interest only mortgages, on the other hand, will see interest charged on the full capital sum for the duration of the mortgage term as the capital debt is not being reduced.

The advantages and disadvantages of an interest only mortgage, therefore, are fairly clear and easy to understand. The benefit of the interest-only mortgage policy is that for its duration repayments are considerably lower than is the case with fixed term, variable or tracking mortgages and thus easier to sustain. The disadvantages are increased overall cost, along with the need to settle the outstanding capital sum one the mortgage has run its course.

One’s own immediate financial position, along with anticipated future changes and hopefully improvements in same, are the essential determining factors in decided whether or not to travel along this particular road and apply for an interest only mortgage.

Compare some of the best interest only mortgage deals online using the above websites, and find your best interest only mortgage deal today.

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