Mortgage Broker Q & A. Interest only or repayment mortgage?
In Q & A we take a look at some of the questions mortgage advisers deal with on a regular basis.
Question; what are the pitfalls and benefits of an interest only mortgage?
They say life is all about risk, and this question is a prime example.
If you want the certainty that your mortgage will be repaid as long as you keep up your payments then you should definitely take a repayment mortgage.
However if the cost is too high in the short term however you could take an interest only mortgage and move to a repayment mortgage later although you should be aware that interest paid will be dead money and not reduce your debt.
If you take an interest only mortgage in the long term you are gambling that by investing wisely you can outperform mortgage interest rates on your investment return and produce a surplus by the end of the mortgage. However if your investment does not perform as planned then there will be a shortfall which you will have to find elsewhere.
It should be remembered though that your investment will not only need to outperform mortgage interest rates as you will pay interest on the full balance of the mortgage for the full term. Whereas if you took a repayment mortgage the capital part of your payment would gradually reduce the interest element and so like for like you will repay more interest over the term on an interest only basis as well.