Interest only mortgages have encountered somewhat of a boom in popularity in recent years, and are often seen as a excellent way to get onto the housing ladder with a large number of first time buyers and buy to let investors alike choosing interest only mortgages over the more traditional repayment mortgages.
Interest only mortgages are very simple, and as one might guess, you are simply paying the interest on your mortgage rather than repaying any capital, at the end of the mortgage term, you will still owe the initial mortgage amount.
For example, if you borrowed £100,000 at a fixed interest rate of 5%. Each month you would pay £416.67. At the end of the mortgage term you would still owe the initial capital loan of £100,000.
One of the big advantages of Interest only mortgages is that it results in significantly lower monthly mortgages payments, and perhaps offers an ideal solution for first time buyers, as they can eventually move over to a repayment mortgage as their income increases.
Originally, interest only mortgages were only offered if their was a separate investment scheme running alongside the mortgage, a common investment was what is know as an endowment policy, which was supposed to provide for the capital amount to be repaid at the end of the mortgage term.
Of course as with any investment, there is no guarantee that the investment would provide a method to settle the capital amount at the end of the mortgage term, how often have you hear of people in the 80's and early 90's being miss-sold an endowment policy?
In modern times it has become more common for home owners to change their mortgages on a regular basis, to keep ahead of the latest deal and minimise their monthly payment, coupled with historic increases in property prices, mortgage companies, have become much more relaxed when offering Interest Only mortgage options.
