Interest Only Mortgages Explained

The monthly payments with interest only mortgages only pay off the mortgage interest, not the amount you borrowed itself. It provides cheaper repayment option compared to alternative mortgage types but you are not paying back any of the debt, just the interest on the mortgage, hence the name interest only mortgage!

Interest-only mortgages were popular during the 1980s and 1990s when they were normally taken out with a with-profits endowment policy.

This led to a massive mis-selling scandal as many customers were promised that the endowment policy would not only pay off their mortgage, but also provide a lump sum.

In some parts of the UK where house prices are still significantly rising, then an interest only mortgage provides a lower repayment option compared to a capital repayment mortgage (and may be cheaper than renting a property). The danger is if house prices fall, then home owners could be left in a state of negative equity where they are left owing more than the value of the house.

If you think you may have been mis-sold your mortgage contact us now!