More and more borrowers show interest in interest only mortgages

According to recent figures there has been a huge surge in interest from UK consumers when it comes to interest only mortgages. The two main types of mortgages are: capital and interest mortgages, which are also known as repayment mortgages, and where the monthly repayments go towards paying off a portion of the interest and a portion of the principle loan, which means that at the end of the mortgage term you owe nothing; and interest only mortgages, where all of the money from monthly repayments go towards paying off just the interest on the loan, and at the end of the mortgage term the principle loan balance still remains.

There are both pros and cons to interest only mortgages. The obvious risk is that you need to be able to raise enough money over the term of the mortgage to pay off the principle loan at the end of the mortgage term, and in order to do this you will need to have another investment that runs alongside the mortgage. The main benefit to taking out this type of mortgage is that the repayments are lower, thus making your mortgage more affordable.

The rise in the number of people wishing to take out an interest only mortgage comes as a result of sky high property prices in the UK, which means that consumers wishing to get on to the property ladder need to take out higher loans with higher monthly repayments, and also because of the rising rate of interest, which also bumps of the cost of monthly repayments. In fact, for some consumers an interest only mortgage is the only option that will enable them to purchase a property. The bad news is that these mortgages are considered high risk by many lenders, and one in five lenders will not even offer this type of mortgage loan.