When taking on a new mortgage deal, certain things should be considered. First, you will need to decide whether you want to be paying off capital each month or only the interest on that capital.
An interest-only mortgage is one in which you only pay off the interest accrued on the total capital each month, while the capital owed remains the same throughout the period of the mortgage deal. http://www.theautoinsuranceworld.co.cc
Advantages of Interest-Only Deals:
According to the Financial Services Authority, in every ten households,four have interest-only mortgages. There are a number of advantages on interest-only mortgage deals, basically. that monthly repayments will be significantly lower than with a repayment mortgage. This means that you will keep more of your income each month to spend on family, or on home improvements, for instance, with a very low base rate, an interest-only mortgage deal can seem almost cheap to maintain.
An interest-only mortgage is also considered to be preferable in the eyes of buy-to-let investors. This is because they are able to claim back tax on the mortgage interest, and they expect that rises in the property market will enable them to make capital repayments later on.
With interest-only mortgage deals, you can choose a savings account or repayment vehicle which attracts the best interest rates and is tax-efficient. And If this is well managed alongside the mortgage and if the payments is maintained, this option could even save you money in the long run.
The dis-advantages of Interest-Only Deals:
Interest-only mortgages are considered risky, as they do not provide the borrower with a complete outline of how they will pay off the capital they owe, and this can cause problems when the mortgage term ends if there is outstanding debt and no alternative means of repayment.
Also, while a repayment mortgage may be more expensive in the short term, in the long run, you will be reducing the total capital owed which will, in turn, reduce the interest paid as well.But with an interest-only mortgage deal, however, the capital will still be payable in full at the end of the mortgage term
Recommendations
If you choose an interest-only mortgage deal, it is best to use a separate savings account or repayment vehicle in which you also make monthly payments into, to ensure you will be able to pay off the capital by the end of the mortgage term. Otherwise you will need to make capital available to pay off the remaining amount owed by the end of the mortgage term.
A repayment vehicle can be an ISA, which you make monthly payments into in order to accrue a lump sum that you can use to pay off the total owed at the end of the mortgage term. You will need to make these monthly savings regularly because different savings options will have different interest rates, which may vary over time, so it is necessary to make sure you continue to pay in the right amount to stay up-to-date.
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