Should you choose an interest only mortgage ?

Around 1 out of ever 5 mortgage borrowers last year elected for an interest-only mortgage

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scheme. Of these, approximately 30% were new first time house buyers. "So what?", you may be saying. And here's the problem: in almost every single case where a borrower has elected to purchase a home with an interest-only mortgage, the scheme was one that was advised to them by a mortgage broker.

In nearly every single case, the borrower was not required to show that they could repay the principal sum borrowed on the day the mortgage matures. In other words, no borrower was asked to show that they had taken out an underlying savings program ( life insurance quotes ) that would have sufficient funds to cover repayment of the principal or any short-fall in the borrowing on the maturity date. Sound familiar? Well it should do, because it has all of the underlying tell-tale signs of the recent endowment mortgage mis-selling scandal.

If you already have an interest-only mortgage, you should not immediately panic that you're not going to be able to afford to repay your home loan when it matures. However, what you will immediately need to do is to take a look at your loan documents and see if you have been required to put in place some form of savings scheme that will help you to repay the principal outstanding on the loan on the day it matures. For example, is some part of your monthly repayments being put aside in an equity-linked savings account? If so, then ( life assurance ) there is a good chance that you should be OK; provided, of course, that the amount you are putting away is enough to cover your repayment and that you will not be expected to repay a significant short-fall.

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