If i switch to interest only mortgage how will it work??

[Shooter]

hi Guys

This is probably a silly question. If i could switch to an interest only mortgage say for 2 years. Am i paying off interest that i would have had to pay anyway or am i just paying this interest to tie things over and then start again back with the same capital and interest owing. Basically is the interest i pay during interest only period coming off the interest that i have been told i must pay when taking our mortgage??

 

[Brendan Burgess]

Hi Shooter

At the start of the year, you owe €100,000 at let's say 3%.

If you pay interest only, you will be charged €3,000 interest over the year or €250 per month and you will still owe €100,000 at the end of the year.

If you have a repayment mortgage over 20 years from now, you will pay €554 per month. You will still have paid around €3,000 interest, but you will have also paid around €3,600 off the balance of your loan. So next year, you will be charged a little bit less interest as you will owe less.

If you pay interest only for one year, and then pay off the loan over the remaining 19 years, the repayment will rise to €576 per month, as you will be paying off €100,000 over 19 years, instead of 20 years.