Stricter Rules on Interest Only Mortgages
26th October 2012

The Financial Services Authority (FSA) says lenders will have to carry out more thorough checks on people’s ability to keep up with repayments.

Interest-only loans will no longer be given solely on the assumption of rising property prices.

The FSA have advised this is to benefit to those taking out interest only mortgage.

This type of mortgage is where your monthly repayment is only used to pay off interest.

At the end of the term you are expected to repay the capital sum.

This is usually done through savings, an ISA, pension plan or endowment policy mortgage

These mortgages are more popular with buy-to-let investors and first-time buyers because the monthly payments are cheaper.

More stringent checks will need to be carried out validate borrowers’ incomes so that they can ensure the borrower can afford the monthly repayments and to pay the balance at the end of the 20-25 year term.

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