What is an interest-only mortgage? - Protected.co.uk

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What is an interest-only mortgage?

An interest-only mortgage is an agreement you take on with your lender to purchase a home. You agree to make monthly payments that will pay off the interest throughout the mortgage term.

How does it work?
During the term of your mortgage, your payments will be relatively low, as you won’t be paying off any of the capital used to purchase your home.
At the end of the term, you will still owe the same amount you borrowed at the start of your mortgage.
In order to repay the full amount you borrowed, your mortgage lender will advise you to make other financial arrangements, such as in stocks and shares or personal investments and products.

What are the advantages?
Your monthly mortgage payments could be relatively low, as you are only paying off the interest.

What are the disadvantages?
If you take out a mortgage on an interest-only basis, it’s possible that you’ll need to offer a larger deposit to secure the property, and you are relying on your other financial arrangements growing to provide enough money to pay off the capital.

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