Interest Only Mortgage

With an interest only mortgage, only the interest is paid off with each mortgage payment. The borrower also takes out at the same time, an alternative 'repayment vehicle' (method of paying off the mortgage) such as an ISA, pension plan or endowment policy.

The most important fact about an interest only mortgage is that the monthly mortgage repayments do not repay any of the outstanding capital balance. As a consequence, it is important that the repayment vehicle payments are maintained, otherwise it will not be possible to pay off the mortgage at the end of the mortgage term.

Endowment Policies

An endowment mortgage is the most common type of interest only mortgage. By taking out an endowment policy, you benefit from life assurance cover and a fixed payment for investment. The fixed payments are based on the amount of the loan, as well as the mortgage term and are designed so that, at maturity, the amount invested and earnings are sufficient to pay off the interest only mortgage. Note there is no guarantee that, when the endowment policy matures and 'pays out', the balance will be sufficient to repay the mortgage.

ISA

The Individual Savings Account, (ISA), is a tax free method of saving to pay off an interest only mortgage. Using an ISA as a repayment vehicle is growing in popularity, but due to the ISAs complexity it is only for the financially sophisticated or borrowers taking advice from a suitably qualified financial adviser.

Pension Plan

By using a Pension plan as your repayment vehicle for your interest only mortgage, life assurance cover is provided and monthly payments are made into a pension fund. When the pension benefits are eventually taken, the mortgage is repaid using tax-free lump-sum and the remainder of the fund is used to buy a monthly pension.

If you are considering an endowment mortgage, an ISA mortgage or a pension mortgage, follow the link below to find out how much your interest only mortgage will cost. There is no obligation and it only takes a few minutes to complete the interest only mortgage enquiry form. Enquire now.

Note As with endowment polices or investment vehicle covering your mortgage, your pension will have to be monitored frequently as any lump sum may not be sufficient to cover any mortgage advance.