Interest only mortgages

Interest only mortgages are loans against a property where the capital is not repaid, just the interest. Therefore the value of the loan never reduces. Most interest only mortgages do not have a time limit like normal mortgages that are usually repaid over 25 years, but the borrower continues to repay the interest until they are in a position to repay the capital.

In recent years interest only mortgages have become more popular as first time buyers have struggled to afford a repayment mortgage. The thinking behind this is that the property will rise in value and when the homeowner sells the property they can use the profit from the sale to put down a decent deposit and be able to get a repayment mortgage. There is an element of risk in doing this because property values can go down as well as up over the short to medium term.

	The decline of interest-only mortgages Figures from the Council of Mortgage Lenders (CML) show interest-only mortgages accounted for just four per cent of first-time buyer mortgages in March 2011, down from a high of 30 per cent in 2007. Kate Saines explains why they are falling in popularity.
	Interest only mortgages An interest only mortgage is a loan secured against the value of a property that is not designed to be paid off.
	1.3m interest only mortgages with no way to pay off A total of 1.3 million interest only mortgagees have no vehicle for repayment behind them, while some 456,000 interest only borrowers could be in negative equity by the fourth quarter of 2009.
	Boom time for interest-only mortgages? The ongoing effects of the credit crunch on global financial markets could encourage a growing number of homebuyers to take out an interest only mortgage.
	Will overpaying on a ten year fixed-rate interest only mortgage reduce the capital? A reader from Cambridge wants to know if overpaying on an interest-only ten year fixed mortgage will help reduce the capital owed at the end of the term.