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When moving home, the type of mortgage that you choose can depend on a number of factors. In the past, many people have used an interest-only mortgage so that they can purchase a property, which is perhaps beyond what that their means should enable. This is financial bad practice because when the property prices dropped from 2007/2008, many were unable to move on to another mortgage product because they had not decreased the amount of loan that they owed. Many people are living with a position of negative equity whereby the amount they owe is actually more than their property value. It’s important to think the implications of taking out interest-only mortgage and not just the monthly saving. Having said that, there are situations where interest-only mortgage is the best solution. For example, if income is seasonal and subject to large variation, interest-only mortgages are often a good solution as that allow for overpayments on the mortgage. Therefore payments can be kept low when income is low, and then a borrower can increase payments, and make lump sum payments, when their income increases during more profitable months. We suggest you take advice as to whether the interest-only mortgage is the best option for you. It is crucial that you have a method of repaying the loan so that at the end of the mortgage term, you’re not left with the outstanding balance. |
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