With interest only mortgages giving a more substantial risk to buyers, and making their chance of paying back their full loan once the mortgage repayment term is up, still thousands of buyers are choosing to go with an interest only mortgage calculator when first looking into setting up a mortgage. So why is the interest only option so attractive to buyers?
Firstly, when you use a standard uk mortgage calculator you will often be given the standard monthly repayment amount as well as that for interest only. This is often the same on a buy to let mortgage calculator as well as an offset mortgage calculator and shows the buyer a far reduced monthly price for their mortgage. For those looking for cheaper options for getting a mortgage, these lower prices can be very attractive as, although you are expected to set up a repayment vehicle or savings plan to pay back the capital investment, you are at liberty to put as much or as little as you are able into these plans, meaning if you are struggling to afford your repayments you just pay a little less that month.
Often people that choose an interest only mortgage have the intention of switching to a repayment plan later on, once they have gotten through the costly first few months of moving home. However, many of these people will then get used to the amount they are paying on the interest only plan and then feel they are not able to afford to pay more in the future.
When interest only mortgages were most popular, buyers tended to have an endowment policy tied in with their mortgage, which was a type of investment vehicle promising to make enough to pay off their mortgage as well as provide a lump sum at the end of the term. However this was still a gamble as if their investments did not go as planned they could still end up with a huge debt and nothing to show for it.
Interest only mortgages are far less popular now, but can still work if you choose an investment vehicle and carefully monitor it, or have some other way of paying off the capital investment – such as an inheritance.
Generally, it is always worth trying to find a repayment plan which suits you but also pays off the full loan as well as the interest. If you are really struggling with payments it is possible to switch to interest only for a short time.
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