Interest Only Mortgage

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How to keep your repayments as low as possible

The interest on a mortgage can be the same as the amount you actually borrow so repayments can be hefty. An interest only mortgage is a much cheaper way to pay, but it's important to note that your payments don't pay off the actual loan just the interest charged on it.

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Most mortgages consist of two elements: the amount you borrow, and the interest you pay on it. That interest soon adds up and as a result your repayments can be massive. An interest only mortgage doesn't touch the actual loan but instead pays off the interest, which means it's much cheaper than a normal repayment mortgage.

Inevitably there's a catch: because you're paying off interest but not the amount you borrowed in the first place, at the end of the loan term you've still got the value of your property to pay off. To deal with this, when you take out an interest only mortgage you'll be given the option of taking out an endowment policy, pension savings or ISA policy.

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