Interest Only Mortgages

With an interest only mortgage you only pay the interest charged on your mortgage, so you’re not actually reducing the mortgage itself. You’ll need to have some other arrangement or plan in place to repay your loan at the end of the term. For example – investments, savings plan, downsizing (where you sell your property and buy a cheaper one using the equity to repay your mortgage), making lump sum payments or changing to a repayment mortgage.

The advantages

If the savings or investment plan you chose performs well, then you could pay off your mortgage earlier compared to a repayment mortgage. At the full mortgage term there may be a lump sum available after the mortgage has been repaid.

The disadvantages

Very few investments or savings plans are guaranteed to repay your mortgage in full. At the end of the mortgage term, you’re responsible for repaying the mortgage in full. If your savings or investments plan doesn’t cover the full mortgage you’ll be responsible for paying the difference. Your mortgage lender can demand repayment and they’ll charge you interest on any outstanding balance until it’s repaid.

Lump sum payments or changing to a repayment mortgage may not be possible if your circumstances change and you can no longer afford the increased amounts.