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Interest Only

An Interest Only Mortgage is a loan in which you pay no more than the interest charged. In effect you are merely servicing the debt, not reducing it. The amount that you owe remains constant.

If you have an Interest Only Mortgage, the onus is on the borrower to arrange how to repay the capital at the end of the mortgage term. Most borrowers with these types of loan take out some kind of long-term savings plan such as an Endowment Policy or an Individual Savings Account (ISA).

With some mortgage schemes lenders allow borrowers to make periodic capital repayments without incurring penalties. This is particularly useful for people who receive bonus payments from their employers, or for self employed traders who receive dividend payments and wish to use these monies to reduce their outstanding mortgage balance.