Interest Only Mortgage

With an interest only mortgage the monthly repayment you make to the lender consists of only the interest on the loan. The repayment of the capital is deferred until the end of the mortgage term, when you have to repay it in full.

With an Interest Only Mortgage, the borrower is usually required to take out a savings or investment vehicle. The concept is that this vehicle will generate enough revenue to repay the capital (the amount borrowed less interest) at the end of the term. This vehicle can take three forms: an ISA (Individual Savings Account), an endowment, or Personal Pension Plan.

It is preferable to take impartial advice when looking for a mortgage and get a Key Facts Illustration on the mortgage. We will put you in touch with a qualified, impartial mortgage adviser for a quote.

Latest News on Interest Only Mortgage

Inevitable rise in mortgage costs. Mortgage costs will “inevitably” rise over the coming months due to the nature of inter-bank borrowing costs say industry experts. The 3 month London Interbank Offer Rate (LIBOR ), which sets the cost of lending between UK financial institutions, rose to a 20-year high of 6.88% last week in the biggest gap between it and the base rate of interest since 1998.

As a result, John Malone of mortgage club PMS warned of “major disruption” ahead in the next 3 to 6 months. Malone said that lenders who have already been hit by the sub-prime fallout such as db mortgages, which has raised its rates an average 1%, and Unity and Infinity, which have suspended parts of their product range, stand to be particularly hard hit.

The Bank of England kept their base rates at 5.75% last week as it tried to halt the credit crunch caused by the collapse in the US sub-prime lending market.

Jim Cunningham, a senior economist at the Council of Mortgage Lenders (CML) said that borrowers whose rates were directly linked to Libor would struggle as result:

“There is an important question on the widening short-term spreads for mortgage lenders and their customers. I know a number of our members have information programmes in place to prepare their customers for the possibility of higher borrowing costs,” he said. “Looking at the end of July there was a Libor margin of 0.23% which has now risen to 0.93% percent so any increase could be as much as the 0.7% difference between them,” he said.