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Jan 12
Why an interest only mortgage calculator can lead to financial difficulty
By Mortgage Calculator on January 26, 2012In today’s difficult financial climate, it is more difficult than ever to get a loan, mortgage or other borrowing. People who have saved for years to get onto the property ladder are now struggling to be able to use their hard-saved money to get the home they have always wanted as banks are more nervous about lending.
However, those who already have a mortgage are also struggling as the economy dips, and this is leading to risky behaviour from families in debt and struggling with repayments. If you look at an interest only mortgage calculator you will see the vast difference between paying off a mortgage in full repayments and interest only. Interest only repayments can be up to £200 cheaper each month and this can look like a tempting offer for those struggling financially.
With the ability to switch your mortgage for a more cash-friendly alternative, many people see the opportunity to switch to an interest only repayment plan as the short term answer to their problems. However, once switched over, should the situation not remedy itself it can seem impossible to go back on this decision and this can lead to staying on this repayment plan for a lot longer than expected. The problem with this is that over time you will become so far behind on payments that another loan could be the only way to finally pay off the amount necessary to secure your home once the repayment terms are over.
With an interest only mortgage you are just paying off the interest accrued on the mortgage. This is calculated by how much is left on the mortgage and as you are not paying off the mortgage at all you do end up paying more in the long run as the interest never goes down, and at the end of the term you are still left with the mortgage to pay off.
Use a uk mortgage calculator to work out the best way to solve your problem without having to resort to this risky measure. It may be worth extending the length of your loan to reduce payments, or switching to a completely different type of mortgage altogether.
Look at a buy to let mortgage calculator or an offset mortgage calculator to see what you can save or how these different types of mortgage may benefit your situation before choosing interest only to save you money.
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