Interest Only Remortgages

All the other mortgages listed in this section are known as repayment mortgages, meaning you are responsible for a monthly payment that includes a part of your principal and an interest charge. There is another type of mortgage known as an interest-only loan. This product requires that you only make small interest payments during the course of the loan, with the capital coming due at the end of the loan term.

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The general idea behind an interest-only loan is that you invest the capital during the loan term, so that you make more than enough to pay off the home when the big bill comes due. However, there are many drawbacks to an interest-only mortgage – enough that most people probably won't reap many benefits, and instead they may find themselves in serious financial trouble when the loan term ends.

An interest-only mortgage does not allow you to build any equity into your property. Because your payments are only allocated towards the interest on your loan, you are not paying down any of your principal payment. This means that if you decide to sell your home at some point in the future, your profit will be based solely on the current value of the property, minus the original amount you paid for it. In an economic climate where increasing home values is not necessarily a given, this does not usually make for a very sound business investment.

Some people opt for an interest-only mortgage that converts to a traditional repayment loan after a certain period of time, such as two years. While this can be a way to get your foot in the door of the property market, the lack of equity building and the sticker shock at the end of the interest-only term make this a risky venture indeed. It is best to avoid interest-only loans whenever possible and opt for one of the repayment loans listed above instead.



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