According to a recent article in The Telegraph, more than 100,000 interest only mortgages will mature this year, still leaving 1.5 million outstanding. It soon became clear that scores of interest only customers would be unable to pay off their mortgages and as a result, it is now much harder to obtain an interest only mortgage with lenders requiring larger deposits and approved repayment plans. But due to investment under performance, many endowment policies did not generate enough capital to repay the outstanding mortgage amount and those property owners are now seeking alternative ways (such as those outlined below) to repay their interest only mortgage. Up until recently, it was common practice for borrowers to take an endowment mortgage which was an interest only mortgage with an endowment policy used as the repayment method. Before the financial crisis, borrowers were often able to secure interest only mortgages without showing solid evidence to the lenders of how the capital would eventually be repaid. They accounted for a third of all mortgages just before the financial crisis of 2008. Interest only mortgages were popular during the 1990s as they were seen as an easy way to get into the property market. Use our handy calculators to compare what your monthly payments will be for an interest only mortgage and for repayment mortgage options. You can find out more about the different types of mortgages here which are applicable to both interest only and also repayment. With a repayment mortgage, your monthly repayments will be higher but at the end of the term, if you have made all of your monthly repayments, you will owe the lender nothing and own the property outright. However, you must have a suitable plan to be able to pay the capital owed at the end of the term and lenders will want you to prove you have an adequate repayment plan in place. With lower monthly payments, interest only mortgages are more affordable in the short term, keeping your monthly outgoings to a minimum. With a repayment mortgage, you will pay back the interest as well as a small part of the capital amount borrowed each month. As you are only paying the interest each month, interest only mortgages have lower monthly payments than those of repayment mortgages.
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