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Advisor warns against interest-only mortgages
4 October 2007 11:30
Interest-only mortgages pose a major risk to borrowers whatever their reason for taking one out, an advisory firm has warned, with capital repayment deals the far safer option.
Re - Financial Planning director David Higgins explained that opting for an interest-only mortgage involves an additional risk, whether borrowers are hoping their property's value has increased by the time they sell it, or are expecting a bonus from their employer.
He argued that the danger of choosing to pay for their home itself later was highlighted by the turmoil over endowment mortgages and advised borrowers with an interest-only deal to switch as much as their loan as possible to a capital repayment mortgage.
Mr Higgins warned that lenders have become more lax in granting these mortgages as well, with the industry having also been lulled into a false sense of assurance by recent house price growth, believing that there is adequate security in offering these deals.
On the issue of shared appreciation mortgages he was equally sceptical, describing them as 'reversionary' products and claiming that homeowners who took them out only realised once property prices started growing how much money they were giving away.
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