When you have been researching your different options for a mortgage on your home, you might have heard of an “Interest-Only Mortgage”. What exactly does this type of mortgage mean and how does it work?
Usually when you take out a loan, you must pay back the capital debt (the amount you borrowed) and the interest on that debt. An interest-only mortgage offers a cheaper option for purchasing a property, because you will only be making payments on the interest and not the capital.
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From the description of how it works, it seems like there would never be a good situation for taking out an interest-only mortgage. However, if you are stretched financially and you are desperate to get onto the property ladder it might be a viable option. Some people take on an interest-only mortgage so that they can buy their first home, then when their income goes up they switch to a repayment mortgage.
These types of mortgages are often used by buy-to-let investors, who are able to claim their tax back against the mortgage interest. If this is your goal, you might find this strategy advantageous.
To find out more about mortgages and determine the best option for your needs when buying a home, contact your trusted mortgage professional.
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