Interest Only is so called due to the fact that you only pay interest to the lender each month. The original loan amount remains the same for the term of the loan. Therefore you require a suitable investment to run in conjunction with the mortgage, in order to repay the loan balance at the end of the term. The most common investments used for this purpose include ISA, Pension and endowments.
The main problem with an Interest Only mortgage, if you have made no plans to save to repay the loan, is that they allow you to fool yourself into believing you are buying a home, when you are really only buying the difference between the purchase price and the current value. Any fall in value of your property could leave you in negative equity, leaving you with even more to repay.
Most lenders now discourage starting an Interest Only mortgage for residential loans, and on remortgage of your residential property, of those that will accept, tighter criteria now applies, for example only a certain percentage of the loan may be on Interest Only, usually a maximum of 50%
Interest Only loans are most popular with Buy to Let mortgages, with most lenders still accepting this type of mortgage.
You can choose how we are paid for mortgages. We can accept commission from the lender in which no fee would be payable. However if you want to pay for our services by paying a fee, then a charge of 0.5% of the loan will apply.
Your home may be repossessed if you do not keep up repayments on your mortgage