Understanding Interest Only Mortgage

Many articles discussing mortgages position interest only mortgages as bad and unbeneficial. This is a huge misconception nonetheless, especially since interest only mortgage comes with various benefits you can really take advantage of. In this article, we are going to review interest only mortgage and understand the benefits this type of mortgage has to offer.

Contrary to popular belief, interest only mortgage is a type of mortgage that gives you the option – yes, OPTION – to pay only the interest portion of the monthly payment during the first several months of the amortization period. For example, if you take out a £200,000 mortgage loan with 6.5% of interest, you can opt to pay £1,083 in interest only instead of the full £1,254 monthly repayment amount.

Interest only payment is offered by the lender with different terms, but with a 30-year mortgage you generally have the option to pay only the interest portion until the 6th year of the mortgage. After that, the monthly payment is £1,264 – only £10 higher than the original amount, making interest only mortgage very beneficial indeed.

If you are a first-time home buyer, interest only mortgage can actually be very beneficial. You can still pay the full monthly repayment amount from the very start and use the interest only payment option as a safeguard. Should you have unexpected expenses that you need to cope with at some point, you can simply reduce your mortgage repayment amount and get the extra money you need to cope with the expenses.