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Last Updated: Monday, 16 July 2007, 14:07 GMT 15:07 UK
Interest-only mortgages
With an interest-only mortgage your monthly payments only cover the interest on the loan - they do not pay off the loan itself.

So you will need to make separate arrangements to pay off the loan when the mortgage ends.

If you don't, you could lose your home.

You can make your arrangements through your lender - but you don't have to.



YOUR OPTIONS

  • Save regularly

    You make payments into a savings or investment scheme each month to build up a lump sum to pay off the mortgage when the time comes.

    The returns offered by bank or building society accounts are usually too low for them to be used to pay off the amount borrowed.

    Instead, it is usual to accept some risk in the hope of a higher return by choosing schemes where returns are linked to the stock market.

    But with these stock-market-linked schemes, there is no guarantee that your money will grow enough to pay off the mortgage in full by the end of the mortgage term.

  • Change to a repayment mortgage later

    This might be a suitable option if, say, your earnings are low now but are expected to be much higher in future - for example, when you've just finished training or gained professional qualifications.

    Using an interest-only mortgage keeps your monthly payments down until you can afford the higher monthly payments of a repayment mortgage.

    But because you're not paying anything off the amount you owe, you will probably end up paying more interest in the long run.

  • Use a lump sum from somewhere else

    For example, using an inheritance or selling something such as another property or a business.

    This is usually a risky strategy - how sure are you that the inheritance will materialise; what happens if your business fails?

  • Sell the property to pay off the loan

    This is suitable only if you won't need to live in the property - for example, if it is a buy-to-let property or a second home, or you are buying something cheaper.

    REVIEWING YOUR PLANS

    Whatever plans you make to repay your mortgage, remember to review them from time to time to make sure that they are still on track to repay the loan when the time comes - or you could lose your home.

    GETTING HELP

    If you would like help with planning how to repay your mortgage, you could think about talking to an adviser.


    Useful checklists and information


    Handy tools


    The BBC is not responsible for the content of external internet sites


    Contact numbers and internet links

    Financial Services Authority - Consumer Information
    Information from the UK's financial services watchdog
    Consumer helpline: 0845 606 1234 (call rates may vary)

    Association of British Insurers

    Council of Mortgage Lenders


    The BBC is not responsible for the content of external internet sites


    This checklist was developed jointly by the BBC and the Financial Services Authority (FSA), the UK watchdog for the financial services industry. It does not provide financial or other professional advice. If you want advice specifically tailored to your personal circumstances you should consult an adviser.






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