Interest-Only Mortgages

With this type of repayment, only the interest on the loan is paid every month. At the same time you will also pay money into a separate fund: an endowment; a savings scheme like an ISA or PEP; a pension or other investment - usually termed as the 'repayment vehicle'. At the end of the term of your mortgage you use this money to repay the original loan.

You are responsible for ensuring that you will be able to pay off the capital at the end of the term.

Pros:

• Monthly repayments on the mortgage can be substantially reduced
• Useful if you are expecting a lump sum at the end of the term

Cons:

• Investing your money does not guarantee that you will be able to repay the capital at the end of the term
• If you are unable to repay, you could lose your home