Interest Only Mortgages

With this method only interest is repayed during the term of the loan. No capital at all is repaid during the term of the mortgage. Interest is paid on the full amount of the loan throughout the full term of the mortgage. The loan is repaid at the end of the mortgage term. There are two aspects to an interest only mortgage - 1.the loan and 2.the savings element that aims to be repay the loan at the end of the mortgage term.

The amount of capital borrowed remains outstanding throughout the term of the interest only loan. When interest rates increase, the rise in monthly payments will be greater for this type of mortgage compared to a capital repayment mortgage. This is because the outstanding capital balance reduces over the term of a capital repayment mortgage but remains at the initial amount under an interest only mortgage.