What is a 100% interest only mortgage?
If you are looking to take out a mortgage in the UK, but you have limited capital for a deposit and you are limited with regards to the amount that you can pay out each month you may find that a 100% interest only mortgage could suit you perfectly. This is because a 100% interest only mortgage means that you won’t have to put down any deposit (because you are borrowing one hundred percent of the value of the property you are purchasing). You can therefore use any savings you do have to pay stamp duty, legal fees, or simply buy furnishing for your home.
A 100% interest only mortgage also means that you can keep monthly repayments on your mortgage down, as you will only be making repayments on the interest on the loan rather than on interest and capital (the principle debt). This in turn means that your monthly repayments are likely to be significantly lower than they would be if you were to take out a capital and interest mortgage (also known as a repayment mortgage).
When you take out this type of mortgage you need to remember that at the end of the mortgage term you will have repaid all of the interest on your loan through the monthly repayment that you have been making, but you will still owe the initial amount that you borrowed to purchase your property. This means that when you take out this type of mortgage you also need to invest in another product that will hopefully offer a positive return and will therefore enable you to repay your loan balance at the end of the mortgage period.
A number of lenders in the UK offer interest only mortgages of one hundred percent, and amongst those that could really benefit from this type or mortgage are first time buyers, who are often limited when it comes to funds for a deposit and disposable income to put towards mortgage repayments. In order to get the best deal on this type of mortgage you should compare deals from a number of lenders, which will make it easier for find the right interest only deal for your needs and budget. You can get some very competitive rates on these mortgages, so you can save yourself a small fortune by taking the time to compare the different deals on offer.