Repayment Options
Interest
Only mortgages |
Advantages |
Disadvantages
Disdvantages Of Interest Only
Mortgages
Interest-only mortgages are higher risk than repayment
mortgages. With most of the investment or savings products
that accompany them, there is no guarantee that your will
have sufficient funds at the end of the term to repay the
mortgage. Your ability to repay your debt is dependent on
the investment skill of the product provider you choose,
not on whether you are able to make your repayments.
Interest-only mortgages are inefficient as regards your
total interest bill over the life of the loan. You pay interest
on the full amount borrowed for the entire term of the mortgage,
whereas with a repayment mortgage, the interest bill is
reducing over time. In comparison then, you pay a considerable
amount more in interest with an interest only mortgage.
If you choose an interest-only loan, you are potentially
exposing yourself to what many people find are complex financial
products. Understanding how they really work is not always
easy and yet if you don't know the ins and outs of the products
you are buying, you could be heading for disaster. If you
are not clear about any aspect of a product before you buy,
always seek professional advice.
Interest-only mortgages are in some ways less flexible
than repayment mortgages. It is usually more difficult or
more costly to switch investment products or providers during
the term of the mortgage if you are unhappy with the performance
of your chosen vehicle. Many of the investment products
are front-loaded, which means that most of the costs and
charges associated with setting up and running the product
are paid for out of the premiums in the early months. It
may be some time before the funds are worth as much as you
have paid in, meaning that you will usually incur greater
costs than you would by switching mortgage product or provider.
