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With a repayment mortgage, you make monthly payments on borrowed capital as well as interest. With interest-only, however, your payments are made up of interest alone, and you do not repay any of capital until mortgage term is complete. Because you are only paying back interest on loan, you will pay less each month than you would with a repayment mortgage.
If you do choose an interest only mortgage, you need to make sure that you know from outset how you intend eventually to pay off your mortgage loan.
Each month you will repay interest on amount borrowed, but at end of your term you need to be able to pay off remaining capital. This may be achieved by taking out an Endowment, Pension or ISA, which should provide you with amount you need at end of your mortgage term.
You must be aware that value of investments plans can go down as well as up and are not guaranteed upon maturity. This makes an interest-only mortgage a more risky option than a repayment mortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may freely reprint this article provided author's biography remains intact:
John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the www.directonlineloans.co.uk website.