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What are interest-only mortgages?

Interest-only (IO) mortgages are becoming popular, said the Financial Adviser magazine last year. Indeed, interest-only mortgages accounted for 20% of all new mortgages granted during the second quarter of 2019 – a significant increase in the 15% market share enjoyed by this type of mortgage five years’ previously.

So, what are IO mortgages, what are their attractions, and what do you need to consider before arranging one?

What is an interest-only mortgage?

If you can get a mortgage and only ever have to repay the interest on the loan, of course, that is going to be popular. But that is not the case with the interest-only mortgage – which you might think to be something of a misnomer.

Naturally, the capital needs to be repaid at some time. But in this case that repayment is delayed until the end of the mortgage term. In the meantime, your monthly payment will simply cover the interest on the amount you borrowed.

Make no d…

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What are offset mortgages?

Many of us are so accustomed to keeping borrowing and saving entirely separate that we think it always needs to be that way.

It doesn’t have to be that way. Instead, you might think of borrowing and saving as the two sides of broadly the same coin when it comes to your domestic finances. At the very least, for example, the more you are saving, the less you need to borrow.

How do offset mortgages work?

That is very much the principle behind the offset mortgage. Offset mortgages are linked to your savings account so that you pay less on the amount you are borrowing – the more you save, the less you end up paying for your mortgage.

That is the result of linking your savings or current account to the mortgage you have with the same lender. The amount in your savings or current account is deducted from the outstanding balance on your mortgage, and you only pay interest on the net balance rather than the total amount of your mortgage.


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What are CIS scheme mortgages?

If you work as a self-employed contractor, you may find it challenging to get a mortgage. That is where so-called CIS scheme mortgages may help. It is important to note that there is no actual CIS mortgage product – rather, it is about the applicant being a member of the Construction Industry Scheme (CIS).

This article will explain:

the structure of the construction industry;why self-employed contractors may have difficulty getting approved for a mortgage;how the CIS works;getting a mortgage.

Let’s dive in …

The construction industry in the UK is structured rather differently to many other sectors. It relies on a complex network of relationships between contractors and subcontractors.

At its simplest, contractors pay subcontractors for construction work they do. Many different firms and organisations may pay other businesses for the construction work they do. Often, those contracting businesses are themselves paid by other business…

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