An Interest Only Mortgages is one whereby your monthly payments consist solely of interest payment and not any capital repayment element. Therefore the balance size of your mortgage will remain the same, and will not be reduced at all by your monthly payments.

If you decide to take out an Interest Only Mortgage, you must consider how the mortgage will be repaid at the end of the term. Interest only mortgages should be supported by a suitable 'repayment vehicle', so that the mortgage balance may be paid off in full at the end of the term. It can be useful for people purchasing a new property to pay interest only over an initial period, to keep their repayments low whilst setting up home. It is then possible to switch on to a repayment option when the time is right, so that you have the certainty that your mortgage will be repaid in full at the end of the term. It is important to note that should you fail to pay off your mortgage (in full) at the end of the term, your home may be repossessed.

Interest only mortgages are not suitable for all borrowers. Borrowers must be aware that if / when switching from interest only to capital and interest repayment, monthly payments will increase. There is also an increased risk of a negative equity situation occuring. You must also understand that there will be more interest payable than if you started on a repayment only to begin with. It is important to ask for detailed advice on interest only mortgages from a qualified adviser.

Another popular use of an interest only mortgage is for Buy To Let or investment properties i.e. any property that is bought with the intention of selling it on for capital gain within the short to medium term.