Wholesale Sunglasses6Interest Only Mortgages Basic

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erest only mortgages allow borrowers to reduce their monthly repayments by only paying interest on the outstanding loan balance. Capital repayments are not made on a monthly basis with this type of home loan product. Instead, the payment of the capital portion of an interest only mortgage is deferred until the end of the term of the loan.
Because interest only mortgages reduce the amount of the payments due to the lender each month, they are a popular vehicle for individuals to finance the purchase of their first home.
This type of mortgage product can help ease the financial burden involved with home ownership [link widoczny dla zalogowanych], allowing borrowers to get a foot on the property ladder and switch to a repayment mortgage when it becomes more affordable. In order to make it more affordable the borrower will need to make payments to the capital portion of their home loan in order to reduce the base from which interest is calculated.
Interest only mortgages are therefore a short-term solution to the high cost involved in borrowing money to acquire property. While interest only home loans are popular at all times, they become even more popular during times of high interest rates.
Despite the advantage of reducing the amount of each monthly mortgage payment during the term of the loan [link widoczny dla zalogowanych], this type of products does have a large disadvantage in that they leave the borrower with a large balance to repay at the end of the term.
To ensure this does not happen, the borrower should either switch to a repayment mortgage at some point during its term of the loan, or set up a Capital Repayment Vehicle (CRV).
A Capital Repayment Vehicle is an investment policy designed to produce enough money to repay the balance of the mortgage at the end of its term. CRVs are usually found in the form of an endowment policy, an ISA-based investment scheme, or a personal pension plan.
Regardless of how the borrower is planning on repaying the capital portion of the loan, a level term assurance policy should be taken out when the interest only mortgage is established. A level term assurance policy will pay out a fixed sum upon death of the assured. The amount assured should cover the capital portion of the mortgage.
Because of the risks involved, borrowers should consult an independent financial adviser before applying for an interest only mortgage to ensure that the right product is selected to suit their personal financial situation.
Applications should also keep in mind that this type of home loan should be used as a short term solution to getting on the property ladder or reducing their monthly repayment amount. An interest only mortgage should not be held over the long term as the balance of the loan will need to be repaid at some point in the future and lenders may not allow borrowers to remortgage past a certain age.
Careful consideration should therefore be given as to whether an interest only mortgage product is an appropriate product to apply for.