An interest only mortgage could be great for somebody with big-income or plenty of healthy investments to help pay it off, but if you don’t fit that description, an Interest-Only Mortgage might be your financial undoing.
While standard repayment mortgages mean that each month you pay off both the interest on your mortgage AND some of the capital you actually borrowed, meaning that over the years you slowly pay off the mortgage and eventually own the house, an Interest-Only mortgage is different.
This is where you ONLY pay off the interest on the mortgage each month, not the capital you actually borrowed, meaning that unless you have a windfall from your investments, win the lottery or manage to save up a huge amount on the side, your ownership of the equity in your house or property never increases.
This means that you could be paying month on month for years, and never truly own your house, and still have the full mortgage amount outstanding at the end of the term.
But if you got pushed into an Interest-Only mortgage and were unsuitable for it, you could be able to make a claim.Speak to an expert
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Your mortgage adviser has some serious and important checks to complete before they can advise that you enter into an interest-only mortgage. These mortgages only work if you have the ability to save or gain the rest of the money to pay-off the mortgage through investments and other sources of income at the end of the term, and your adviser has a responsibility to check that you have the ability to do this to a reasonable degree – if not, your mortgage may have been mis-sold to you.
This means that mis-selling of an Interest-Only mortgage is linked to Affordability and Suitability, ensuring that your adviser is steering you in the direction that is in your best interests, based on your current and projected finances.
Some interest-only mortgages are connected with an endowment policy too – what if this doesn’t pay it’s promised returns? Could you keep your house? If you find yourself with no viable way of repaying the lump sum at the end of the mortgage, then ask yourself: why did my adviser recommend this particular mortgage plan – they should have known I can’t afford to pay it back!