Interest Only Payments

Payments made on a mortgage that cover only interest rather than the loan itself.

Interest-only mortgages work on the basis of you only repaying the interest on the amount that you borrowed during the mortgage term itself; however, at the end of the mortgage, you are required to have a repayment plan to pay off the capital as well.

How does this option differ from a traditional mortgage?

Traditional repayment mortgages differ from interest-only mortgages in that they require the borrower to pay off not only the interest, but also some of the capital each month. It is the responsibility of the borrower, not the lender, to have a credible repayment plan in place to ensure the original loan is paid off.

Practical Application Example

“ If you take out an interest-only mortgage of £100,000, at the conclusion of the mortgage term, you will still owe your lender £100,000. You will only owe less than this if you chose during the loan to repay part of the capital as well as the monthly interest payments. ”