Price comparison website Moneysupermarket.com has warned that interest-only mortgages can be expensive options, despite the fact that their popularity has risen in recent years.
The number of interest-only mortgages, where the consumer pays back only the interest charges on the sum borrowed, leaving the capital outstanding, has doubled in the last four years, becoming more common among first-time buyers in particular.
However, the website cautions that by taking out an interest-only mortgage, consumers could end up paying over the odds for their loan, sometimes up to £12,000 more.
"I would whole-heartedly urge consumers to think carefully before taking out an interest-only mortgage, even if they are attracted by the lower monthly payments," said Louise Cuming, head of mortgages at moneysupermarket.com.
"People should only consider this type of mortgage if they are sure they will be disciplined enough to save money elsewhere, as well as setting aside any additional lump sums of cash, like bonuses, and not touch it."
The website's research shows that when switching from an interest-only mortgage to a repayment mortgage, the difference in monthly repayments can be as much as £350 per month.
The jump in monthly outgoings this represents can come as a bit of a shock to a person's finances, which is why many independent advisers recommend the full repayment option from the beginning of the mortgage if at all possible.To read more about mortgages, click here.
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