What are the disadvantages?
- It can cost you more in the long run: with an interest only mortgage, you pay interest on the whole amount for the whole term rather than gradually chipping away at the money owed. Therefore, only paying interest on an amount that is decreasing over time.
- There is no certainty: if it’s an investment there’s no guarantee that it will be enough to pay off the balance and settle the mortgage. You’ll have to have some plan to pay off the balance at the end of the term.
- The banks deem them to be risky: theoretically it can work well, but as it is fraught with risk and that’s why many banks have stopped offering them. They may insist on you saving to pay the mortgage off at the end of the term in a long-term ISA or a stock market-linked account.
You should always take expert financial advice if you’re considering taking an interest only mortgage.