Interest only mortgage can be an expensive mistake

| October 31, 2008 | 0 Comments
Interest only mortgage can be an expensive mistake

Moneysupermarket.com is cautioning homeowners struggling with their finances against switching from a repayment to an interest only mortgage.

The idea will tempt many as on the average £150,000 loan, moving to an interest only deal could reduce monthly payments by up to £236.

However, the price comparison website warns that such a move will dramatically increase the overall cost of buying a home and should therefore only be considered as a last resort.

The average borrower will pay an extra £18,000 if they opt for an interest only loan for the first seven years of their mortgage, rather than repaying some of the capital from day one.

In addition, when they want to begin repaying the capital, the monthly bill could rise by around £408.

Moneysupermarket’s head of mortgages, Louise Cuming, warns that an interest only loan can be a very expensive mistake, adding that people should not be tempted to switch just to support their current lifestyles, if opportunities exist to cut back on expenditure and keep up their existing mortgage commitments.

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