Interest-only mortgage loans exists no more

Find out why customers are shirking the interest-only mortgage loans of previous years.

13:24 18 April 2013

Mortgage loans have been slowly shifting over the past few years. At one time, interest-only mortgage loans were very popular but are being phased out as demand increases for loan payments which cover the principle and the interest.

 

The interest-only mortgage loans essentially only credited payments towards the interest on the loan, leaving a sizeable chunk to be paid as soon as the interest-only payment terms were completed. If the payment was not made in full, the property was at risk of repossession.

 

• Interest-only mortgage loans worked well for those who already had the majority of the money available and simply needed to leave it in a savings account to accumulate interest.

 

• These types of mortgage loans offered people who were overly optimistic about their ability to come up with the lump sum ending payment, to believe that everything would be fine at the end of the term.

 

• Many interest-only loans did not cover the total cost of the property, and customers would have had to take out additional funds if they did not have them already set aside.

 

The mortgage loans currently that are gaining in popularity offer customers the following benefits:

 

• Assured payoff date as long as repayments are made as agreed upon.

 

• Allows customers to adequately prepare financially for the purchase of the house.

 

• Increases the likelihood that consumers will be able to remain in their home.

 

• Prevents customers from borrowing money they cannot afford.

 

•  Repayment does not depend upon the value of the property at any given time.

 

• Provides a more static alternative to the riskier interest-only mortgage loans.

 

The demand for interest-only loans is definitely waning. There are still certain buyers who are financially able to choose those types of mortgage loans with utmost certainty that they will be able to purchase outright at the end of the term, but it seems the majority of people prefer a more stable payment plan.