In this situation you don’t actually pay off any of the mortgage – just pay the interest each month. In some situations, eg with loans for commercial purposes, the interest is payable at less frequent intervals, often 3monthly, but that’s very rare in home purchase arrangements. Your monthly payments will be lower because the capital remains unpaid and will not reduce the loan itself. At the end of your term, you still have to repay the capital you initially borrowed. Often a borrower will have an alternative plan to repay the loan at the end, perhaps from other investments or the property is sold to clear the debt.
There are many different styles of interest applied to mortgages and this can be more complex when one considers that interest may be chargeable to mortgage account either on a daily, monthly or less commonly now, annual period. This can have major implications when considering additional payments to reduce the term of a mortgage.
A parting thought…
Whatever your borrowing requirement it is usually advisable to ensure the payments can be met, even if the borrower’s health or income are interrupted through accident or ill health, or even death.
- How will you meet your long term loan commitments if your income is interrupted,
either by illness or death?
- Ask us about solutions – before you need to rely on them…
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOUR DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.