Interest only mortgages enable you to make monthly payments that only cover the interest amount for the funds you have borrowed. Your monthly payments don't pay back any of the main capital sum you initially borrowed.
What this means is that you will need to payback the full mortgage capital sum in a single lump payment at the conclusion of the mortgage term or whenever you sell the property.
If you've got an Interest only mortgage of £250,000 for 25 years, and you pay the interest amount every month. At the end of the 25-year mortgage term, you will still owe the full original £250,000 capital loan amount.
New Swansea Building Society customers planning to apply for a mortgage on interest only or part and part basis, terms need to satisfy the following criteria:
An interest only mortgage gives you the ability to pay just the interest charges on your home loan. A capital repayment mortgage enables you to pay the main capital and interest off simultaneously.
The majority of mortgages are capital repayment mortgages.
Interest Only Mortgages
Interest only mortgages, are property loans whereby you only pay the loan's interest. At the end of the mortgage term, you'll need to payback the full mortgage capital amount in full.
There is certainly a greater risk of negative equity than with repayment mortgages. The original mortgage balance will remain exactly the same throughout the mortgage term, causing you to be more exposed to house price changes.
The total amount paid in interest over the full term of interest only mortgages also exceed the interest paid on a repayment mortgage.
Capital Repayment Mortgages
Capital repayment mortgages, generally known as repayment mortgages, mean you pay back both a portion of the mortgage sum and the interest every month, the monthly repayments are calculated to ensure that the mortgage is paid down at the conclusion of the mortgage term.
When you pay back both the capital sum and the interest, your total debt will decrease as time goes by, which means the amount you pay in interest will also start to reduce.
If you are an existing customer and you have any concerns about repaying the remaining balance by the end of the mortgage term, a range of options may be open to you, including:
You should review your repayment plan on a regular basis to ensure that it’s on track and you’ll have sufficient funds to repay the mortgage capital at the end of the mortgage term.