Summary
Interest only mortgages are becoming big business again - this article looks at the reasons why people are starting to choose them above repayment mortgages.
Mortgages. Interest only mortgages back in fashion
Interest only mortgages fell out of favour a few years ago but it
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The reason is quite simple - getting an interest only mortgage is the Secured loans perfect way to afford the monthly repayments without sacrificing lifestyle. Since most people are forced to buy homes that are slightly out of their price range, a repayment mortgage can be too much to deal with, so interest only is the easy way out.
The way the interest only mortgage works means that you pay off the interest as you go, and then pay the capital sum off at the end of the term. Borrowers are supposed to set up a ( cheap mortgages ) separate savings vehicle to cover this eventual repayment. The problem is, some people don't bother, and decide to cover the repayment by selling the property at the end of the term and downsizing - something that both the FSA and lenders are anxious to avoid, especially as the economy cannot be depended on over such a long period of time.
Their concerns have led to some changes in the way interest only ( life insurance ) mortgages are administered. Before, borrowers could get the mortgage quite easily without having to provide any proof of a separate savings vehicle. Now, they must provide that proof before the mortgage can be arranged. Most people choose to save with an ISA or pension because they are tax free and will ideally over-perform - leaving the borrower with an extra nest egg at the end. There's nothing to stop borrowers from setting up a savings vehicle, however, and then simply deciding not to use it, or even cancelling it straight away.
Interest only mortgages used to be the most popular way of paying back a mortgage, { life assurance } and an endowment policy would be the savings vehicle. But you'll have heard in the last few years that many of these policies under-performed, and people were left with a shortfall when the time came to pay off the capital. Thanks to all this publicity, the interest only mortgage completely fell out of favour. Like all investment products, they could not be relied on 100% to perform as expected. Similarly, no investment product taken out now can be 100% relied on to perform well and provide the projected sum in 25 years time.
For US visitors, research your next interest only mortgage deal at MortgageFit, a community providing knowledge and help on mortgage issues.
Your home may be repossessed if you do not keep up your repayments on a mortgage or any debt secured on it. Security by way of a charge on your home may be required.
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