Pros of an interest only mortgage:
Lower monthly payments:
1. With an interest only mortgage, you only pay the interest on the loan each month, rather than also paying towards the original amount. This can result in lower monthly payments compared to a repayment mortgage.
Potential for higher returns:
2. By only paying the interest on the mortgage, you may be able to invest the money you would have used for principal repayments elsewhere, potentially earning a higher return on your investment.
Flexibility:
3. Interest only mortgages can offer more flexibility in terms of repayment options, allowing borrowers to make lump sum payments towards the original amount when they have extra cash available.
Cons of an interest only mortgage:
Risk of negative equity
1. With an interest only mortgage, you are not paying down the principal amount of the loan, which means there is a risk of your property being worth less than the outstanding mortgage balance (negative equity).
Limited mortgage options
2. Some lenders may be reluctant to offer interest only mortgages due to the associated risks, which can limit your options when shopping for a mortgage.
Higher total interest cost:
3. In the long run, an interest only mortgage can end up costing you more in total interest payments compared to a repayment mortgage, as you are not paying down the principal amount of the loan.
Capital repayment shortfall:
4. : There is a risk that borrowers may not have enough funds to repay the principal amount at the end of the mortgage term, resulting in a capital repayment shortfall.
To discuss the best mortgage for you, speak to one of our expert team
