The increases in interest rates over the past months are making more home buyers look around for cheaper mortgage deals.
There are more and more people opting for interest only mortgages in an attempt to keep monthly payments as low as possible. As an example if you had a £100,000 mortgage over 25 years at 5.75% you would pay around £629 per month compared with £479 per month on an interest only mortgage.
The problem with interest only mortgages is that you do not pay anything off the capital sum borrowed, so even after paying this type of mortgage for 25 years you would still owe the same amount, on the above example you would still owe £100,000.
Interest only mortgage can be used short term when finances are stretched but you should always plan to switch to a repayment mortgage as soon as possible or have some other investment vehicle in place to pay off the mortgage.
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