Mortgage Information > Types of Mortgages > Interest Only

Interest only

An Interest only mortgage is when your monthly payment only includes the interest accrued, the total balance of the mortgage is payed off at the end of the term. At the same time the borrower takes out the mortgage, the borrower chooses a 'repayment vehicle' (method of paying off the mortgage) such as an

ISA
Pension Plan
Endowment Policy

There is however a problem with an interest only mortgage as the borrower only pays off the interest accrued. It is important that the payments are maintained into the repayment vehicle or it may not be possible to pay off the mortgage at the end of the term.   Also as the mortgage term increases the monthly interest payment will be based on the initial balance of the mortgage.  This would not reduce as a repayment mortgage would.  An Interest only Mortgage can be risky, the 'repayment vehicle' could give the borrower more than the outstanding balance or much less that the outstanding balance.