Norhafidz

One industry professional has expressed concern over the woes that could lie ahead for consumers that are on interest only mortgages. There are two main categories with mortgages, which are repayment mortgages and interest only mortgages. With repayments mortgages the monthly repayment is allocated to both the principle loan and the interest, so that by the time the mortgage term ends you should owe no more on your mortgage. However, with an interest only mortgage the monthly repayments is paid towards the interest only, and at the end of the loan term the principle loan amount is still outstanding.

Many of those that decide to opt for an interest only mortgage do so because the monthly repayments are much lower, which at present helps those suffering real financial problems. Some people are even switching from a repayment mortgage to an interest only one, although concerns over the high risk of these remortgages means that the number of lenders that will offer them is limited. Borrowers with this type of mortgage are supposed to invest money elsewhere over the term of the loan, so that by the end of the term they will have sufficient funds to pay off the outstanding principle loan. However, not everybody does this.

One industry official has stated that he is concerned over the number of people that may find they do not have the means to pay off the outstanding principle loan balance at the end of the mortgage terms, adding that those with interest only mortgages are heading for financial disaster in the future. He stated: 'It is tempting to switch from repayment to interest-only. But, unless borrowers have plans in place to eventually repay their loan, they may be simply storing up problems for the future. Getting to the end of the mortgage term and still owning the initial debt would be disastrous.'