Interest-only mortgages
decisions.
How to decide if you
should get one
If you still want to borrow interest-only, ask
yourself the following questions first
• Am
I clear about the long-term risks and costs of not setting
up a repayment vehicle right away?
If you can't clear the full debt when the time comes,
you could lose your home.
•
Can I afford to take the same mortgage on a repayment (capital
and interest) basis even if it means cutting back on other
spending for a few years?
Going for repayment is cheaper over the long term because
there's less interest to pay and the capital debt will be
cleared without you having to take on an expensive and risky
investment plan.
•
Could I afford a repayment mortgage if I increased the term
from, say, 25 to 30 years?
This will increase your total interest bill, but at
least it will mean your entire debt is cleared without having
to worry about a repayment vehicle.
•
If I really can't afford a similar size of repayment loan,
can I find a cheaper, less risky way to keep my costs under
control?
It could be worth buying a slightly cheaper property
if it would enable you to afford a repayment loan. You can
always trade up when your financial situation improves.
•
Do I understand the various types of repayment vehicle and
the costs and risks involved?
Possible repayment methods include investing in a stocks
and shares Isa (individual savings account), saving into
a high interest bank or building society cash Isa or selling
other property.
Most experts agree that saving into an endowment policy
or a pension plan for this purpose is not a good idea.
For more on this, see The
endowment mortgage and The
pension mortgage.
If you are still determined to take an interest-only mortgage,
look for one with flexible
features, that allows you to make additional one-off payments
when you can afford them, to reduce the capital sum.
And make sure you consult
an independent financial adviser before settling
on a repayment vehicle this is a costly and uncertain,
long-term commitment, so it's essential to choose wisely.
Read on about Interest Only mortgages
Should
I choose repayment or interest-only?
How
to change from an interest-only to a repayment mortgage.
The
true cost of an interest-only mortgage
Frequently
asked / common questions about interest-only mortgages
