Mortgage Advice From Ocean- Helping you find the right mortgage for you
When you enquire to Ocean Mortgages you will be given access to leading mortgage lenders through our panel of lenders who offer interest only mortgage plans. We will search our panel of mortgage lenders to find the best mortgage plan for your individual circumstances.
An Ocean mortgage adviser will examine your individual circumstances and discuss the different types of mortgages available. Whether you would like an interest only mortgage, part & part mortgage or a repayment mortgage, our adviser will discuss the benefits and draw backs of the different mortgage types. We will be happy to help you through the remortgaging process answering any questions you may have.
What is an 'interest only mortgage'?
An interest only mortgage is a mortgage where you only repay the interest each month, so your capital (debt) does not reduce. Whilst your mortgage payments are lower on an interest only mortgage opposed to a capital repayment mortgage this is because you are not repaying any of the capital balance. However please bear in mind you could pay back more over the term as at the end of the mortgage term the original debt is still outstanding and must be repaid.
For example, a £100,000 mortgage at a rate of 5% over 25 years would cost £416.67 per month interest only, and £591.27 per month capital repayment.
Interest only mortgages are often used by first time buyers and buy-to-let investors. If your circumstances change and you are having difficulty meeting your mortgage payment,s by remortgaging to an interest only mortgage, from a capital repayment mortgage, could help you reduce your monthly repayments. It could also allow you to rearrange your finance and may stop you falling into arrears which would affect your ability to find credit.
Previously interest only mortgages were mainly combined with an endowment policy designed to pay off the mortgage debt by the end of the mortgage term. Unfortunately not all endowment polices matured with a sufficient value and left many borrowers with a shortfall to find on their mortgage. It is important to remember at the end of the mortgage term you will still need to repay the outstanding capital balance. It is still possible to take out an interest only mortgage and use an investment vehicle, such as an Isa, to build up the amount needed to pay off the debt. However many borrowers are wary of using risk based investments to repay their mortgage.
People taking out interest only mortgages without repaying any of the capital are taking a major risk if property prices fall, their debt will be bigger than their home's value and they will find themselves in a negative equity situation. Even if the value of their home rises the initial debt will not decrease and they will still need to pay off the capital part of the mortgage or remortgage their home.
High prices in some areas, particularly London and the South East, mean that sometimes an interest only mortgage can be cheaper than renting. While you may not be paying off the capital, you do own your own home and are on the property ladder. If house prices rise you will have some equity in your home. However, if house prices remain static and you never pay off your debt you are effectively 'renting' from the bank or building society, you must also be aware you could find yourself in negative equity if house prices fall and you owe more than the value of your home.
Interest only mortgages are very popular especially with first-time buyers, with the intention of switching to a capital repayment mortgage in due course. If this is the case you must remember the longer you remain on an interest only mortgage the higher the total amount repayable will be as interest is charged on the total capital outstanding. Interest only mortgages are also sometimes used more when interest rates are higher and people find the monthly payments more manageable.
Speak to an Ocean mortgage adviser on 0800 9169186
who will be happy to help you & answer any questions
you may have about interest only mortgages
If you have an interest only mortgage it may be worth considering switching to a repayment mortgage if possible. Ocean's mortgage calculator can assist you to see what the differences are between interest only mortgages and repayment mortgages, although some mortgage plans may have early repayment charges for switching and these must be taken into consideration.
An alternative to a capital repayment mortgage may be a part & part mortgage this is a halfway house between a interest only mortgage & a repayment mortgage.
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