Many of you may be considering an interest only mortgage at the moment especially for the unfortunate ones who have been made redundant and are struggling with their household bills. Having your biggest outgoing bill reduced drastically can bring you a huge relieve when times are more difficult. In the property boom years you may have borrowed a large sum to afford the house you really wanted meaning you are left with little choice at the moment and need to go down the interest only route in order to be able to afford the repayments.
Thinking long-term though you do need to think about how you will pay off the actual mortgage, a separate repayment strategy should be in place to repay the mortgage. There are various options including relying on inheritance funds to pay off the mortgage, selling the house in the future or a more practical answer is having an investment plan.
You could work out the funds needed at the end of the term needed to pay off the mortgage and then save the appropriate amount in an ISA (individual saving account) or you could invest the money needed in a pension.
You do have the option of changing your mortgage type in the future to a repayment mortgage possibly when you have paid a chunk off the mortgage or your career prospects improve or your dependants have left home. Certainly at the moment with the base rate at only half a percent many are opting for a repayment mortgage that you can overpay on. You could make the overpayment amount the difference that you are now saving in repayments from when interest rates were at five per cent so your aren’t paying out more that you are used to, shaving potentially years off your mortgage term.
Interest only mortgages are a popular choice among first time buyers who can struggle with the mortgage repayments initially but once they are in benefiting from increasing incomes and a lower mortgage can then think about moving onto a repayment mortgage. Do remember to look at the fees that mortgage lenders can charge for moving providers.
