UK Interest-only Mortgages

Where mortgage payments only cover the interest on the borrowed amount. The borrower usually simultaneously takes out an alternative repayment vehicle (way of paying off the capital sum of the mortgage) such as pension plan, ISA or a life insurance (endowment) policy.

With an interest-only mortgage, the important distinction is that your monthly repayments do not include any of the outstanding capital balance. So without a repayment vehicle in place, there will be nothing in place to pay off the mortgage at the end of the term. It is therefore important to keep up installments on the repayment vehicle as well as the interest payments on the borrowed capital.

Endowment Policies - These are the most popular repayment vehicle for interest only mortgages. They also provide life assurance cover and fixed payment schedules. The monthly payments are calculated using the amount of mortgage and the term of the mortgage. When the policy matures, the amount taht has been invested should be enough to pay off the capital outstanding on the mortgage. Having said that, there is no absolute guarantee that the balance will be enough to repay the mortgage.

ISAs - The ISA (Individual Savings Account) is a way to save and accumulate tax-free interest. ISAs are becoming more popular as repayment vehicles. Read more in our ISA section.

Pension Plans - Similar to an Endowment mortgage, in that lfe assurance cover is taken out to the value of the mortgage. However installments are paid directly into a pension fund. At the end of the term, the mortgage is repaid with tax-free cash from the residual of the pension fund.

At QCK.com we have partnered with several expert FSA-registered IFAs to ensure you obtain the very best value mortgage available - one that suits your individual requirements.

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