Many people take out interest only mortgages just to keep their repayments down especially with the interest rates going up. Borrowers are assuming that their house prices are going to for up and they will cover the cost of the mortgage.

An interest only mortgage is when your monthly repayments only cover the amount of the interest occurred on your mortgage for that month. At the end of the borrowing term you will still owe the lender the total amount you have borrowed. To pay the remainder you will be paying into a saving plan which will help towards paying off part or all of the remaining amount. Many borrowers take the option of overpaying their monthly repayments to reduce the final amount at the end of the interest period.

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Taking out a interest only mortgage has many benefits of it, a borrower has the flexibility to pay a small sum of money each month but if they decide to pay more one month they can.

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When taking out an interest only mortgage you must always know that once the interest has been paid off you must pay back the borrowed amount as a lump sum. The lump sum would normally be made up of saving which you had made during the mortgage term, this could be through ISA's or other saving plans.

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