Interest Only Mortgage
What is an Interest Only Mortgage?By Jeff Lakie The CML (Council of Mortgage Lenders) shows that nearly 6 Million people have received mortgages that are interest only. Interest only mortgage means that your monthly payments are applied only to the interest accrued on the debt and not the actual debt itself. Additionally, the CML has found that many first time home purchasers are seeking interest only mortgages. The number of first time buyers that apply for interest only loans increases each year. Why such a boom in this type of loan? Well research has found that by allowing first time homebuyers to pay interest only, is the only way many of them can afford to buy a home. An example of how an interest only mortgage works is say a homebuyer wants to borrow £100,000 for three years at a fixed rate of 4.99%. The estimated payment for this person would be about £600 to repay the loan. However, if you make this interest only, their monthly payment would decrease to only around £400. The general problem with this type of mortgage is that the borrowing homeowner would need to have some way of being able to pay on the capital of the loan. Otherwise, at the end of the loan term they will still be left with the same debt. Years ago, a mortgage lender would require that anyone applying for a loan be able to prove that they would be able to pay their loan. Typically, it is usually required that those interested in a interest only loan have some sort of investment, for example and ISA (independent savings account) that will go towards the capital when the mortgage terms end. It is extremely important that you thoroughly consider all your means and put a great deal of thought in how you can pay off the capital of the loan. Many people rely on house prices to rise to help them, with lower wages and falling prices this will not provide a secure environment. For example, you could have part of your mortgage switched into a repayment mortgage or open an ISA and start saving month every month. Jeff Lakie is a freelance writer for the Loans Uk website. Visit our site today for more great finance articles. Article Source: http://EzineArticles.com/?expert=Jeff_Lakie |