In the wake of increasing interest rates, interest only mortgage products have become an increasingly popular tool for home owners to control their monthly expenses.
Interest only mortgage applications generally rise in number when interest rates begin to rise as home owners fear becoming victims of rising borrowing costs. Mortgage costs are typically the highest expense of the average UK household and it is therefore important for many borrowers to control this cost.
Interest rates have begun to creep up slowly from their historically low level of late and because of this more and more households are opting for an interest only mortgage.
The Bank of England has been slowly increasing the base rate in order to curb inflation. This has been having an effect on the mortgage market by prompting home owners to consider locking in the low interest rates now instead of exposing themselves to potential future rate rises.
In addition to existing home owners locking in their interest rates with interest only mortgage products, first-time-buyers can also benefit from the scheme.
Interest only mortgages can provide a method for low income earners to get a foot on the property ladder. Because the monthly repayment amount is only comprised of interest, the repayments are lower and affordability is increased.
However, the capital portion of the loan must be repaid eventually. There are several vehicles available for this including savings and investment plans, endowments, and remortgaging to a repayment loan at some point in the future.
It therefore makes sense to some borrowers to apply for an interest only mortgage in the beginning and to develop a plan to repay the mortgage balance at a later stage.
If a borrower opts for an interest only mortgage for a period of ten years, for example, they can remortgage to a repayment mortgage after that and begin to pay off the balance. After the ten years has elapsed, the home owner’s income may have increased considerably, making it easier to being to repay the balance of the mortgage.
If you are considering applying for an interest only mortgage, it is a good idea to speak to a qualified mortgage adviser for some impartial advice. An independent adviser will be able to source interest only mortgage products from the entire mortgage market and therefore find the most appropriate product for you.
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