Interest-Only Mortgage - UK mortgage where interest charged only is repaid
An interest only mortgage works in the same way as an endowment mortgage works, the customer only pays on the interest of the mortgage and not on the capital. With the interest only mortgage loan, the customer pays off the interest on the mortgage in monthly payments for a fixed term, usually five to seven years. Then the consumer either refinances, pays of the balance remaining with a lump sum, or starts paying off the principal loan, in which case the payments can jump sky high.
UK Interest Only Mortgage Example
With the UK interest only mortgage the repayments are made up entirely of the interest on the mortgage loan, when the mortgage term is complete the capital originally borrowed is still left outstanding to be repaid. The benefit to the consumer of choosing an interest only mortgage is they only pay back the interest on the mortgage, they pay less each month in repayments than they would with a repayment mortgage. But they still owe the lender of the mortgage the capital of the loan. To cover this balance, borrowers are advised to make regular contributions into an investment policy alongside their mortgage repayments. Investment policies to repay the outstanding mortgage are most commonly in the form of an endowment mortgage, an ISA mortgage or a pension mortgage.
UK Mortgages Information
Repayments on mortgages can be affected by any fluctuations in the base rate and how the base rate and interest rate fluctuations effects types of mortgage repayments depends on what sort of individual mortgage product customers have.
With a capped rate mortgage it might affect repayments, a rise or fall will be dependant on the direction of change in the base rate and if the mortgage lender passes the change on to the customer.
With a capital and interest mortgage the customer pays of both the interest on the mortgage loan as well as the capital, so repayments will be affected.
With a discounted rate mortgage the interest rate fluctuations does effect repayments, however for a limited time the consumer will have a reduction on the rate according to their agreement. When this agreement expires the consumer can shop around for a new mortgage or negotiate a new deal.
With a endowment mortgages repayments to the mortgage lender covers both the interest the lender charges on the money borrowed and a part is invested to repay the capital. Repayments on the mortgage are affected by any fluctuations in the interest rate.
With a fixed rate mortgage the interest rate is set for the entire duration of the mortgage loan. Fluctuations are not going to affect mortgage repayments during this period.
With a flexible rate mortgage it might affect repayments, a rise or fall will be dependant on the direction of change in the base rate and if the mortgage lender passes the change on to the customer.
With a interest only mortgage the consumer only pays of the interest on the mortgage loan, so repayments will be affected by any fluctuations in the interest rate.
With a repayment mortgage both the capital and the interest is paid back over the agreed term so repayments will be affected by any rate changes.
With a tracker rate mortgage the interest rate changes in accordance with any fluctuations so it will affect repayments and a rise or fall will be dependant on the direction of change.
With a variable rate mortgage it might affect repayments, a rise or fall will be dependant on the direction of change in the base rate and if the mortgage lender passes the change on to the customer.
Mortgage Information.
Most mortgage providers will insist on being named on the properties UK building insurance policy and insist on receiving proof of cover as a condition of the mortgage. With mortgage repayments being connected to the base rate of interest, repayments can both go up as well as down, depending on the type of mortgage customers have taken out.