interest only

jodavies

Hi. Could someone please explain what the disadvantages of an interest only mortgage are if you were to save on monthly repayments and use these savings to pay off equity. Really confused - would appreciate any expert insight.
Many thanks

Typhoon2000

There are no disadvantages if you can earn interest at a greater rate than is being charged by your lender. The disadvantages occur when you don't save. Regardless, interest only residential mortgages are harder to come by these days.

Dird

Assume normal & interest only both have 5% interest/year and the mortgage is £100k
Interest only: Every year for the mortgage length you pay £5k interest fees. Then at the end you have to pay £100k
Normal: Every year you pay off some of your mortgage. Year 2 you may pay 5% interest on £95k (£4750), Year 3 is 5% on £90k (£4.5k).
This means you'll pay the £100k back over the course but with less interest as each year the 5% is on a lower total rather than always 5% of £100k

amnblog

If you are talking about a residential mortgage to be taken, you question is all but redundant as options in the market are limited to cases with high equity and often above average income.


If you are talking about an existing case - an interest only mortgage overpaid monthly is no different from a repayment mortgage in how it works. Not being commitment to make the capital repayment is of course, more flexible.


Paying interest only in order to save the capital repayment rather than make it is not a smart idea.