What Is an Interest Only Mortgage?
In basic terms, an interest only mortgage is where you pay back the interest each month, rather than the loan that you originally borrowed from your bank or other lender. If you purchase a ‘buy to let’ home with this kind of mortgage behind you, you could simply sell the property once the mortgage has ended as a way of paying the rest of the loan back. The rest of the loan would need to be paid at the end of the mortgage period so people will do things like this or will use inheritance if entitled to any.
The advantages of an interest only mortgage are as follows:
- Less monthly payment: It would mean having to pay less each month, which in turn adds less pressure to payments.
- Sold and sorted: As mentioned, having a ‘buy to let’ property with an interest only mortgage can mean simply selling the property at the end of the mortgage period. This could pay off the rest of the mortgage instantly and potentially leave you with a profit.
- Invest in the home: The money not being spent on the mortgage due to the lower costs could give you space to spend money on investments in terms of the home itself. Over time, this could add value to it for when you eventually sell it and move on, leaving you with a profit to walk away with.
- It’s flexible: You don’t always have to pay the set amount each month. If a month comes where you have some spare money that you feel is best being put towards your mortgage loan, you are well within your rights to do so, showing the flexibility of the mortgage type.
The disadvantages of an interest only mortgage are as follows:
- Lump sum at the end: Whilst you are paying your interest back, bare in mind that you are not paying back the initial money that you borrowed. This means that in the long run, you are not actually paying back anything you have borrowed. Instead, at the end of the mortgage period, you have to pay back the money you were loaned. People will tend to do this by (as mentioned) selling their home or through paying the loan with savings or inheritance they are entitled to.
- An uneasy reputation: As you can see, an interest only mortgage can be overly appealing, however, it is winced at nowadays, to the point that banks are actually beginning to stop offering them! Some people will think of this type of mortgage as a sort of investment into other things, but ultimately, they will forget that their home needs to be paid off at the end of the mortgage period. With that much money tinkering on the edge, this type of loan is seen as a sort gamble to people.
Difference from A Repayment Mortgage
The big difference between a repayment mortgage and an interest loan mortgage that people get confused between is simple; a repayment mortgage pays off the actual loan you gained from your bank each month, whilst an interest loan only pays back the interest each month. This means that with a repayment mortgage, by the end of the mortgage period you will have paid off your loan and have nothing left to pay. As you now know, and interest loan mortgage is different in that you are left with the full load of loan you borrowed to pay at end of your mortgage.
Contact Mis Sold Mortgage Experts
Now that you know enough about an interest only mortgage, do you feel that you have had an interest only mortgage mis sold to you? If you feel you’ve had an interest only mortgage mis sold to you, you could be entitled to an interest only mortgage claim. If you need help with your interest only mortgage claim, contact us at Mis Sold Mortgage Experts. We at Mis Sold Mortgage Experts are dedicated to making sure everyone gets exactly what they are owed if they have been mis sold a mortgage type. Feel we can help you? Call us today on 0800 756 3986 or feel free to email us at firstname.lastname@example.org. Alternatively you can fill out our contact form on our Contact Us page and we will get back to you! One of our experienced mortgage solicitors will be happy to assist you in any way possible.