Interest only mortgages, without a suitable repayment vehicle or repayment strategy, carry a great risk and as such it is necessary to point out that this article and the information contained within it is in no way a recommendation. To arrange any mortgage on an interest only basis comes with an inherent risk. These risks are discussed within this article but any responsibility for arranging an interest only mortgage should be taken seriously by the mortgagee that is the borrower.



When choosing a mortgage there can be many different things which you have to weigh up beforehand, none least is that of the overall cost. When all said and done if you cannot afford the mortgage then the whole thing tends to be a bit of a none starter.

There are many ways to manipulate the overall monthly cost of a mortgage. You can choose a particular rate over another, such as a short discounted rate this will always be cheaper than a long discounted rate. The same also applies to fixed rates the shorter they are for, generally, the cheaper they will be.

To reduce monthly payments you can also change the overall term of the mortgage. If you have a repayment mortgage and you shorten the mortgage term then the monthly payments will increase. This is due mainly to the fact that the shorter you have to pay for the debt the more you will have to pay in order to completely repay it. The flip side to this is if you lengthen the term then the payments will reduce because, yes you guessed it, the longer you have to pay the lower the payments needed in order to repay the same amount.

Perhaps the most obvious way to reduce your mortgage cost is to simply borrow less. Why is this so? Simply, this is because if you borrow less, you have to repay less. For some people, borrowing less is not something they would consider an option because they want a particular property, which costs a certain amount. Therefore, they would not consider a cheaper property that would therefore result in them having to borrow less money. There is a solution to this problem that you can consider.

Interest only mortgages are just what they sound like. With interest only mortgages, all you pay on a monthly basis is the interest on the principal you've borrowed. This means that your monthly payments are going to be lower, but you should also know that you're not paying back any of the money you originally Broward to buy your home. This means that your monthly payment is going to be much lower, sometimes as much as 25% less. At least on paper, this saves you a lot with your monthly expenses.

However, by doing this, you're not repaying the loan you originally borrowed. If you do this, you are in some ways cheating the system because the loan amount you actually borrowed is going to remain outstanding for the entire time you owe the debt. If you don't do anything until you reach the end of your mortgage, keep in mind that you will still owe the entire amount of your original debt to the lender at the end of your mortgage.

It is fair to say that there are some very genuine reasons to arrange an interest only mortgage one of the main ones is if you are expecting a lump sum of money in the future such as an inheritance or the maturity of an investment. In these cases it is more than fair and appropriate to arrange an interest only debt on the basis that you know were the money is coming from to repay it.

However, there are some people that arrange an interest only mortgage with no means of principal repayment in sight. Some people do this because they have exhausted funds and/or are in financial difficulty, but they remain committed to the property they have; they arrange an interest only mortgage so that they can stay where they are. If this is you, then I suggest that you give yourself five years' limit on your interest only mortgage. During that time, get back on your feet financially so that you can begin to pay against the principal at the end of that time period. At the end of that five years, change your mortgage to one where principal is paid along with interest. If you don't do this, you're going to have the entire principal owed at the end of your mortgage. Therefore, it's up to you to ensure the principal will be repaid if you wish to stay in your home.

So in summary if you feel you need to do an interest only mortgage arrange it with your eyes wide open. Make sure you have some plan to repay it, even if that plan is to change the debt in years to come, there needs to be some idea in place to make this financial decision a sound one.