Interest Only Mortgages – Good Or Bad?

Are you looking at buying a home? Then you might want to think about whether an interest only mortgage is a good or bad thing. 

Keep Your Monthly Expenses 

Down

Owning a home can be quite expensive these days. So it’s no wonder that homebuyers are looking for more and more ways to keep their monthly outgoings down. Interest only mortgages help to reduce the amount of money that you’re paying out.

An interest only mortgage does exactly what it says on the tin. Each month, you pay just the interest on your mortgage, not the actual mortgage principal itself. It’s a good way of keeping your monthly payments to a minimum. But remember that you’re not actually paying off your loan amount, just the interest. So at some point in the future, you’ll have to pay off the principal (and this could mean a big lump sum repayment).

If you are in full time employment and earn a good wage, then an interest only mortgage might be more bad than good. You might be better paying the higher amount each month, but getting your mortgage paid off benefiting you in the future.

Investing The Difference 

But if you need to keep your monthly outgoings to a minimum, an interest only mortgage could be a good way to get on the property ladder! You could save a lot of money each month by just paying the interest on your mortgage. You could even take the money that you’re saving each month and put it into an investment. Then you might have enough in the future to pay off a large chunk of your mortgage. But of course, this is a bit of a gamble – whose to say that your investment will make money, or even that you’ll have enough spare cash to invest? But if you do think you have the money, and the discipline, investing the money that you’re saving on an interest only mortgage could be a good thing.

An interest only mortgage could also be good if you work in a seasonal industry – say the tourist industry. In the ‘off’ season, you could pay just the interest in order to see you through to your next income. In the busy time, you could make additional payments to chip away at your mortgage amount.

Interest only mortgages can be good or bad. Paying an interest only mortgage can be good if the equity in your home increases. In the same way, an interest only mortgage could be bad if your home doesn’t increase in value because you’re not building any equity in your home. This could affect whether you can afford to move up the property ladder in the future.

Cheaper Than Renting? 

Think of paying an interest only mortgage like paying monthly rent. It works out cheaper month-by-month, but you might not be able to sell your home to raise cash in an emergency. But perhaps this isn’t a concern for you if you are younger with no family.

How an interest only mortgage can be good or bad for you depends on your personal situation. It can be a great way to save money, but it might not offer the most security.