INTEREST ONLY MORTGAGES
With repayment mortgages you pay off the interest and some of the capital each month, guaranteeing that the mortgage will be cleared at the end of the term.
With interest-only mortgages, you only pay off the interest on the amount you borrow.
You use savings, investments or other assets you have (known as ‘repayment vehicles’) to pay off the total amount borrowed at the end of your mortgage term.
If you have a £100,000 interest-only mortgage for 25 years, you’ll pay the interest on the amount you borrowed each month.
When the 25 years are up, you’ll have to pay the full £100,000.
You must be able to show the lender how you’ll repay the mortgage at the end of the term.
You - not the lender - are responsible for putting in place and maintaining a credible repayment plan to repay the original loan.
You can’t rely on the promise of a future windfall such as an inheritance or bonus.
You also can’t speculate that property prices will rise enough to allow you to buy a smaller home and still pay off the mortgage.
The lender will check at least once during your mortgage term that your repayment plan is on track to cover your mortgage.