Interest Only Mortgages

What is an interest only mortgage?

An interest-only mortgage means your monthly payments cover only the interest charged on the mortgage loan.

With an interest only mortgage, borrowers only pay back the interest on their mortgage loan each month. Monthly payments made on an interest only mortgage do not pay off the principal amount of the loan that you owe to the lender.

The principal amount of the mortgage loan only has to be repaid at the end of the mortgage term.

So, at the end of the mortgage term, assuming you have not missed any of your monthly interest payments, you will owe the same amount of money that you borrowed at the beginning of the mortgage term. You will need to make sure you have made arrangements to pay off the loan when the mortgage period ends. If you don't do this, you could lose your home.

How to pay off an interest-only mortgage

If you do choose an interest only mortgage, you need to make sure that you know from the outset how you intend eventually to pay off your mortgage loan. There are several options available as to how to repay your mortgage at the end of the term.

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Interest only mortgage

With an interest only mortgage, your monthly payments will cover only the interest charged by the lender. Your monthly payments do not pay off any of the capital or debt, which remains constant during the entire term of the mortgage.

With an interest only mortgage, one of the conditions of your mortgage agreement with the lender will be that you must repay the total capital borrowed in full at the end of the mortgage term. Unless you have personal resources with which you will be able to repay this mortgage debt, you will need to make separate arrangements to pay off the loan at maturity.

There are several ways that you can do this; for example, by paying into a savings or investment scheme to build up a lump sum sufficient to pay off the mortgage debt at the end of the term. If you decide to take out an interest only mortgage, it is your responsibility to make sure that you have enough money to repay the mortgage at the end of the term. If you don't do this, you could lose your home.