One in five lenders refuse interest only mortgages
For many years consumers in the UK have had the choice of taking out either a repayment mortgage to buy their home, which is a capital and interest mortgage where repayments cover both the loan and the interest on the loan, or an interest only mortgage, where repayments cover the interest only and the loan remains untouched until the end of the term. For many, although a little riskier than the repayment mortgage, an interest only mortgage was the only option due to the more affordable repayments that came with this type of loan.
However, recent research has shown that one in five lender are now refusing to consider lending on an interest only basis, even though consumers can dramatically reduce their monthly repayments with this type of mortgage loan. The survey was carried out by Moneyexpert. It seems that some lenders are too concerned about interest only mortgages to consider them as an option for consumers that want to take out a mortgage loan with them.
In order to illustrate the saving that could be made on monthly repayments with an interest only mortgage, an example of a £150,000 mortgage was used. This showed that repayments each month could be around £240 lower than someone who borrowed the same amount on a repayment mortgage. However, this is not taking into account that interest only borrowers have to look for another type of financial product to run alongside the mortgage, which should hopefully enable them to repay the balance of the principle loan at the end of the mortgage term.
For some consumers an interest only mortgage is the only choice available due to the lower repayments, but with fewer lenders offering this facility now it seems that the choice available for interest only borrowers is getting less and less.
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