What is an interest only mortgage?

An interest only mortgage is a type of mortgage where you only have to pay the interest to the lender each month.

The monthly payments are cheaper than a repayment mortgage. However, at the end of the mortgage term the debt which needs to repaid is the same as you initially borrowed.

How do they work?

With an interest only mortgage you do not have to make any repayments of capital each month. The lender is only expecting the interest, not any of the original debt.

So as each year of the mortgage term passes your outstanding mortgage amount stays the same.

When your mortgage eventually comes to an end you will need to repay the whole mortgage in one go.

READ MORE ABOUT INTEREST ONLY MORTGAGES

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