Borrowers On Interest Only Loans Could Potentially Save Thousands
Since the effects of the credit crunch have practically crippled the UK banking sector, banks, building societies and other loan companies have become increasingly reluctant to offer interest only loans to borrowers, as just part of their measures to tighten their lending criteria and make it much harder for a potential borrower to obtain the loan they require.
However, a recent survey has estimated that somewhere in the region of 23 per cent of all homeowner loans in the UK are conducted on an interest only basis and no loan capital repayments are being made, thereby leaving borrowers with the same outstanding balance at the end of the loan term as when they started.
The research comes from Moneysupermarket.com, who have advised those borrowers with an interest only loan to switch to repayment as soon as possible. The price comparison site findings show that it would cost interest only borrowers around £25 to switch their homeowner loan to repayment and that, due to the dramatic reduction in interest rates, their loan repayments would only be around an extra £50 per month, compared with what they were paying prior to the interest rate reductions.
Furthermore, by switching to a repayment deal, borrowers could save an average amount of around £40,000 over the term of their loan.
Hannah Skenfield of moneysupermarket.com said “The fall in base rate has meant that many people on tracker and variable rate mortgages have seen their repayments plummet, but whilst the initial monthly saving may seem attractive the borrowers really taking advantage of low rates are those using the opportunity to repay more of the outstanding debt on their home.
Unfortunately, those currently on interest only deals are by nature of the arrangement not paying off any of their capital and, without the aid of a regularly reviewed repayment vehicle, are setting themselves up for a bill for their full loan balance at the end of the life of their mortgage.”
