Interest
only has been a popular method of repaying a mortgage.
The alternative is capital repayment where interest
is paid along with a proportion of the debt.
Monthly mortgage interest payments mean the actual amount
being borrowed is not being paid, hence the name interest
only. So there would have to be a plan in place so the
debt of the loan can be paid.
A
few years ago this problem was commonly addressed by
paying the debt off with an investment vechile, typically
an endowment policy. This often had attached to it a
cheaper form of life insurance. The endowment was paid
monthly separately from the mortgage and over time the
idea was the investment to grow to a sum over and above
the total debt. At times this was a very popular scheme.
However in the crash of 2000, the growth of investments
was severely effect by falling stock markets and many
policies were under threat not to hit their target.
Interest
only mortgages also were popular to run along side a
pension but again falls in the stock market diminished
their potential payout. PEP and ISA would probably fall
under the same banner. The problem being that monthly
payments for the investment where high.
Some
customers have taken interest only with the intention
to sell and down size. Or as in the case of buy to lets
hoping for growth in the equity of the property. The
trouble with all these methods is one has to be mindful
that the exact lump sum at the end of the term is unknown.
