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.

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Endowment policies used to be a popular way to build up funds to repay capital of interest-only mortgages. However, some people have found these policies haven't built up enough money to pay off full mortgage amount at end of mortgage term.

Make sure you make arrangements to pay off loan when mortgage ends. If you don't, you could lose your home.

The main advantage to an interest only mortgage is initially seen in payments you make to your lender. The fact that you will only be repaying your interest here means that your monthly payments will be much lower than they would be for a repayment product.

If your investment does not give you good enough returns, you won't have enough money to repay capital owed. So, it's vital to take good and qualified advice before buying an interest only product and then to track your investment progress on a regular basis.

You also need to consider fact that rates you get for an interest only mortgage may not be as favourable as those on offer for repayment mortgages.

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