An interest only mortgage means that you will only make payments towards the interest on the amount you've borrowed, and will still owe the full amount borrowed at the end of your mortgage term.
This type of mortgage has always been popular with people who have struggled with the affordability of taking out a mortgage and want to keep their monthly repayments down.
The primary concern from many lenders is the question of how borrowers will pay back the loan at the end of the mortgage term. In the past, it was common for borrowers to take out an endowment policy to repay the loan, but these under-performed and people had to extend their term and keep paying their mortgage for longer than expected.
The capital still needs to be repaid at the end of the mortgage term, and this would usually come from savings or an investment policy. However, if borrowers did not have these in place they would have to sell their home to pay the loan.
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Your home may be repossessed if you do not keep up repayments on your mortgage.
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Before 2010, when interest only mortgages were extremely simple to take out, lenders did not want to see any proof that borrowers were taking out insurance policies or savings plans in order to pay off the amount borrowed at the end of the term. This contributed to the ‘Credit Crunch’ as people were taking out loans that ultimately could not be repaid.
The market is a very different place today, and now there are many more checks to ensure that borrowers will be able to pay back the amount borrowed at the end of the mortgage term.
At Derngate Wealth Management, our mortgage advisors Northampton can help you to find the right interest only product, and talk to you about putting in place a financial plan to repay the loan.CALL TODAY - 0800 612 9031