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An interest only mortgage is a loan where the borrower is only required to pay the interest amount of that loan – and not any of the principal – at least until the end of the agreed term.
Interest only mortgages have several advantages and are often used by property investors for a number of reasons.
An interest only mortgage means the repayments are lower than with a principal and interest mortgage. This means that with an investment property any income from rent can go towards covering the majority (if not, all) of the repayments due on that mortgage.
Interest only mortgages also work well for investors flipping property – that is property being renovated to sell for a profit, especially as a short term solution, freeing up cash for the desired renovations.
Also, tax on the interest paid for a mortgage on an investment property can be claimed back.
This is not an option for an owner occupier with an interest only mortgage. However, as an owner occupier interest only mortgages can be helpful if you are not sure whether the repayments of both a principal and interest mortgage can be managed.
With interest only mortgages you do not get penalised for making extra payments as you can. Watch out though – interest rates are generally higher than fixed term principal and interest mortgage rates. Also, keep in mind that at the end of the term, the loan would need to be repaid in full or re-mortgaged.
Not all banks offer interest only mortgages, and not all advertise them either so you might need to shop around or make a few enquiries before making an offer on a property.
For mortgage or lending advice for your home or investment property or to talk about whether an interest only mortgage could be right for you, talk to the team at Hallam Jones today.
Call us on 0800 404 202 or drop us an email firstname.lastname@example.org