Interest only mortgages

Friday, 07, Apr 2006 12:00

An interest-only mortgage is a loan secured against the value of a property that is not designed to be paid off. Instead, each payment made by the holder of an interest-only mortgage covers the interest on the loan without reducing its value.

An interest-only mortgage has no set time limit and the borrower will have to keep paying interest until they are in a position to pay off the capital separately, for example when they sell their house or when an insurance policy matures.

An interest only mortgage is used best in a period of rising house prices, or when mortgage-holders can expect to be earning more in the future (i.e. for a young couple).

Interest only mortgages come in many different forms including lifetime trackers, fixed rate deals, and discounted rate deals.