More than four out of ten mortgage customers are now taking out interest-only loans.

According to Paragon Mortgages, four years ago over 70 per cent chose a repayment (capital and interest) deal, but today only 58 per cent are taking this route.

It’s not hard to see why, but interest-only is a choice they could come to regret.

With house prices rocketing and, more recently, interest rates on the rise, repayment mortgages can seem prohibitively expensive.

Borrow £125,000 at 5.5 per cent over 25 years and you could reduce your costs by nearly £190 a month with an interest-only loan.

That’s more than £56,000 over the full mortgage term.

The only problem is that, at the end of that time, you’ll still owe the original £125,000, which means you’ll actually be almost £69,000 worse off – assuming you can find the cash to clear your debt.

It you can’t, you could lose your home and have nothing to show for all those years of interest payments.

That’s why it’s better to bite the bullet and go for repayment right away.

This entry was posted on Saturday, June 30th, 2007 at 6:45 pm and is filed under UK Mortgages, UK Personal Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.