The {pros And Cons|benefits And Drawbacks|advantages And Disadvantages|positives And Negatives|pluse

By Author: Steven Harrison
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When {comparing|evaluating|researching|looking at|examining|assessing} {repayment mortgages|repayment only mortgages} and {interest-only|interest only} mortgages, {borrowers|consumers|people} need to {be|always be} {aware|conscious|mindful} of {their|the} {options|alternatives|possibilities} when it comes to the latter {choice|option|alternative}. An {interest-only|interest only} mortgage is a {|curious} device because it {allows|enables|lets} the {borrower|customer|purchaser} to {refrain|avoid} {repaying|paying back} the {capital|money} until the end of the {loan|mortgage|mortgage loan}. {Thus|As a result|So}, {the|the actual} {reason why|reason} the {loan|mortgage} is known as "interest-only" {is because|is really because} the {borrower|customer|purchaser} {pays|will pay|pays off|repays|will pay for} {|only }the interest over the term of the loan. {They do not|They don't} {repay|pay back} the {capital|money} until the loan's term is up, which may not be until fifteen, twenty or even thirty years later.

The {|biggest}{advantage|benefit} of an {interest-only|interest only} mortgage {|loan }is {the ability to|that you ...
... can} {defer|delay} the repayment of the {capital|money}, {which|this} makes the monthly {payment|repayment} {|much|a lot|significantly} {lower|reduced|more affordable}. {For example|For instance|As an example|E . g .}, a mortgage {|loan} {worth|of} {£150000|150000 pounds} at 5{%| percent} interest over a {twenty-five|25|twenty five} year {period|term} would {|only|merely} require £625 {monthly|per month}. {|This is the precise cost of the interest on a monthly basis over that term.} With a capital repayment that {|low|lower} monthly amount would {grow to|be} £877{, an increase of over £200.|.}

{Interest-only|Interest only} mortgages have the {advantage|benefit} of {lower|cheaper|small} {|monthly} {payments|repayments}, {which makes|helping to make|which can make them} them {very|extremely|rather} {attractive|appealing|desirable} to {borrowers|consumers}. {However, The|The} {|great|major} {disadvantage|drawback|downside|pitfall|issue} of an {interest-only|interest only} mortgage {|loan} is {|the fact|the simple fact} that the {capital|money} {remains|is still|still has to be} to be {paid|payed off|paid back} {|in full} {|at the end of the loan's term}. If the capital {amount|sum} is {|quite} {large|significant}, such as the £150,000 example {|loan|mortgage} in the {previous|prior|earlier} paragraph, if the {borrower|customer|purchaser} has not either saved or has ready access to such {capital|money} they will {face|encounter} {considerable|substantial} {difficulties|complications|challenges} with their {lender|loan provider|mortgage lender}.

{Interest-only|Interest only} {mortgages|home loans} have been {a problem|an issue} {with|for} the UK {|property market for some time.|real estate market}. {During|Throughout} {the housing boom from 2000 to 2007|the recent real estate boom}, the {number|amount} of {borrowers|credit seekers} taking out an {interest-only|interest only} mortgage {|loans} relative to the {total|overall} mortgage market {grew|increased} {dramatically|considerably}. {Finally|Eventually} in 2007 {33%|a third} of {all mortgages were|of the mortgage market was} {interest-only|interest only} mortgages. The {Financial services authority|FSA|FSA (Financial Services Authority)} has {|recently} begun cracking down on {lenders|providers} of {interest-only|interest only} {mortgage loans|mortgages} because of the {alarming|worrying} {|upward} trend {in taking them out in addition to the fact that many borrowers do not have plans to repay the capital .|these type of mortgages.}

These {loans|mortgages} {were|are} attractive to borrowers because of high {|house|mortgage} {prices|costs} and the chance to {pay|repay} {|only} low monthly {interest rates|repayments}. In an inflationary environment, the ability to get into the {real estate|property|housing} market provides a {hedge|safety net} against {|continuously} {rising|increasing} {home|house} {prices|costs}. Now that the {housing|property|real estate} market has {contracted|deflated} and continues {to contract|contracting}, deflation is the {primary|main} {threat|risk|hazard}. Deflation is a mortgage borrower's worst {nightmare|problem}{|, even more so with an interest-only loan}. As {home|house} prices {fall|drop|tumble|slide}, {the|there is a} {risk|danger|chance} that the mortgage will be {worth more|more valuable} than the {|actual} {house|property} {|increases}. {|Finally, when the price does fall below the value of the mortgage, the customer is in negative equity.}

If deflation hits the {Uk|United Kingdom} {in|with} full force, the resulting negative equity {crisis|turmoil} could result in many people {abandoning their houses|getting there houses repossessed}. This {would|might|could|would probably} create a serious {crisis|problem} in the financial sector {|as lenders suddenly find themselves in a situation exactly like 2008}.
About Author:
{Steven|Steve} Harrison is a UK based {financial advisor|personal finance writer|writer|finance writer} and {specialises|enjoys} writing about {lots of |many} {subjects|topics} {including|such as} {interest only mortgages|interest only mortgage|mortgages|interest-only mortgages} and {bad credit mortgages|mortgages for bad credit|mortgages for people with bad credit|poor credit mortgages|adverse credit mortgages|mortgages for people with poor credit}.