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Interest Only Mortgages
You may have heard of an interest only mortgage as an option for lower monthly payments on your mortgage. With an interest only mortgage, your monthly payments are interest only. This means that you are not paying back to the lender any of the capital that you borrowed. But this can help you, especially if you are buying your first house.
With an interest only mortgage during the interest-period of the mortgage, payments are not credited towards the principal of the loan. Therefore, the balance of the loan does not change during this period of time. If you do not put in place an investment vehicle the lender at the end of the term will expect you to fully repay the loan outstanding to them and if you fail to do so they could repossess your home, as you will be deemed to have broken your lending terms.
To repay an interest only loan you would need to put in place an investment vehicle to run the term of your specific mortgage. This could be an ISA, and Endowment, Pension or other type of investment vehicle that will build up a large enough capital sum by the end of the term to give you a lump sum to pay off in full the sum you owe your lender. Advice on these should be sought from an Independent Financial Advisor. Remember that you will need to be able to afford the payments on the investment vehicle and your mortgage payment to the lender each month.