Why would people have an interest only mortgage?

Question

And what is the point?

ideally name a few benefits... weigh them up against renting a property if its doable.

Thanks

Answer 1

i personally find it to be one of the most foolish things anyone could do. the only point i can see if you perhaps have just graduated from college and have taken an entry level,position with a company with the promise of future earning being substantially higher than what you'll be making the first year and can switch to a fixed rate traditional mortgage with out penalties ! i find no difference between renting or an I.O.M. you still have no equity! remember the future holds no guarantees -if you locked into an I.O.M. 2 yrs. ago the value of that property has considerably reduced and your locked in at the high price-and still no equity. if you have to take an I.O.M. you really can't afford it!

Answer 2

1- On interest only mortgage your payments are lower.

2- You can afford to buy a slightly bigger property (compare to repayments of capital and interest mortgage)

3- On buy to let, your rental yield is usually only met by interest only payments.

3- On bye to let property, it helps with capital gains tax

Answer 3

You get a lower monthly payment and anything extra you send in is applied to the principal.

Answer 4

I have an interest only mortgage and because I no longer work full time and have lowish income but not retired. I have a lot of equity in my property and also have a small mortgage anyway and thats the way we pay it.

Presumably the Building society realise that they will get their money back eventually and it is low risk from there point of view.

Answer 5

More affordable as interest payments alone are smaller.  Cashflow is healthier.

You can choose whether and when to repay principal.

You can save spare money in an ISA or other tax efficient savings, get more interest than you pay on your debt and have the money to hand in case of emergency.

Choose to save in other investment vehicles whose returns are greater than cost of debt in the long run. Risky but over 25 years could well work.