We are seeing increasing numbers of borrowers who, rather than face reality, are using an interest only remortgage as a form of defence against the onslaught of rising repayments until the cavalry arrives, said Cath Hearnden, director of My Mortgage Direct.
The double whammy of interest rate rises and the end of low rate fixed deals has seen mortgage repayments shoot up overnight for many homeowners. Switching to interest only soothes borrowers jangled nerves as it deals with the immediate problem of a sudden drop in disposable income until they put plan B into action.
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The danger with interest-only mortgages becoming so normal is that homeowners will never feel that the right time to start paying their mortgage is really that and hang around hoping that the equity from the sale of their home will redress the balance.
Its easy to see the attractions of the interest-only escape route, continued Hearnden. There are ways of mitigating the effects of rising costs. We are advising clients who feel this is a necessary course of action that they could compromise by opting for part interest-only and part repayment to keep the repayments the same.
For example, the same mortgage at 5.5 per cent with £100,000 on repayment and £50,000 on interest only would cost £843.25, which is almost the same as they were paying previously.
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