Interest Only
As the name suggests, only interest is paid each month.
The amount borrowed doesn't reduce during the term of the mortgage and the full amount of the loan remains outstanding at the end of the mortgage term.
As no capital is being repaid, monthly mortgage payments are less than with a repayment mortgage, but it is very important to ensure that there is an alternative way to repay the loan at the end of the term.
A lender would normally require evidence or a statement from the potential borrower concerning how they propose to ultimately repay the mortgage balance at the end of the term.
If your intention is to repay the mortgage with some form of savings or investment plans, the lender may make it a condition of the mortgage that the investment vehicle be maintained by the borrowers.
It may require a 'note of interest' being lodged with the investment vehicle provider, so that it would be notified if, for example, the borrowers ceased to pay the premiums.
It would be the borrower's responsibility to maintain the monthly premiums to ensure continuity of the repayment vehicle and to carry out regular reviews to ensure that the performance is sufficient to repay the loan upon maturity.
This type of mortgage would not be suitable for any borrower who wanted an absolute guarantee that their mortgage would be repaid at the end of the term.
Only a capital and interest 'repayment' mortgage can, providing all mortgage payments are made in full and when due, guarantee to fully pay off a mortgage.
