Title:
Is An Interest
Only Mortgage A Good Idea?
Word Count:
521
Summary:
If you are going
to take out an interest only mortgage, make sure that the funding method you
use is safe, and that you have contingency plans if the fund is insufficient to
pay back the capital.
Keywords:
Mortgages,mortgage,uk,home
loan,loans,loan,uk,compare,adverse,credit,debt consolidation
Article Body:
If you are
looking for a home but you know that paying a mortgage will be a severe drain
on your finances, then perhaps you should look at getting an interest only
mortgage. If you are unsure about what an interest only mortgage is and how it
can help you, then this article can provide you with some useful tips on
getting an interest only mortgage.
What is an interest only mortgage?
An interest only mortgage is a mortgage where you only pay back the interest on
the loan, and none of the capital debt is repaid directly. Once you get to the
end of the mortgage term, you will pay back the capital payment in full.
How do you pay back the capital?
Although you don’t pay the capital back directly through your monthly mortgage
payments, you indirectly pay for the capital. You pay for the capital through
an investment fund or other lump sum. So, instead of repaying your mortgage
capital each month through mortgage payments, you may monthly payments into an
investment fund. Apart from investment funds, the other main ways to pay off
the capital are:
· Savings
· Switching to a repayment
mortgage
· Another lump sum such as
inheritance
What is the advantage of this?
Although you are still making monthly payments into an investment fund, these
payments are likely to be a lot lower than the monthly mortgage payments you
would pay on a normal repayment mortgage. Your interest only payments will be
low each month and so if you cannot afford to pay a lot each month at the
moment, an interest only mortgage might be a good idea. Also, the idea is that
the money you put into the investment fund will mature and leave you with enough
money to pay off the capital at the end of the mortgage term as well as leaving
you with some extra money.
Are there risks?
Of course, there are a number of potential risks of getting an interest only
mortgage. The first problem is that if you are hoping to pay off the capital by
switching to a repayment mortgage later on, you will be paying back a lot more
money than if you started on a repayment mortgage. Although you may find it
hard right now, getting a repayment mortgage to start with might be a better
option. However, the main risk involved with interest only mortgages is that
the investment fund you set up will not be enough to pay back the capital at
the end of the mortgage term. If you cannot pay back the capital then you could
end up losing your home at a time in your life that it will hit you hardest,
such as at retirement age.
If you are going to take out an interest only mortgage, make sure that the
funding method you use is safe, and that you have contingency plans if the fund
is insufficient to pay back the capital. If you do this, then getting an
interest only mortgage can be a great way of keeping your payments low whilst
you improve your income.