It would cost lesser amount per month and that is the main reason most people get attracted to interest only mortgage without understanding the overall picture. It is true that you have to pay lesser amount per month compared to capital repayment mortgage. But at the end of the tenure, the borrower has to pay the full loan amount. Unless you save a lot you would end up losing your home! You have to make payments towards a repayment vehicle so that you can pay the capital when the loan term ends.

There was a time when endowment policies were attractive; banks used to sell endowment policies along with the interest only mortgages as repayment vehicle. But with the diminishing prospect of endowment policies the lenders are uncertain how to evaluate the capital repayment ability of the borrowers. Experts believe that even ISAs are not dependable any more as they would not produce expected return.

Financial Services Authority (FSA) has introduced new rules; to respond to the changes major banks have announced that they are going to tighten the criteria. Things will become tougher if all the other banks introduce similar changes to judge whether the applicant can repay the loan or not. Barclay’s announced that they would not count on ISAs based on stocks and shares and Santander has increased the initial deposit from 25% to 50%.

Banks are incorporating checks to make sure that interest only mortgage holders have enough savings to pay 120% of the capital at the end of the loan tenure. Mortgage brokers are expecting that this would make it difficult for the home buyers to secure interest only mortgage.

All the capital repayment mortgage holders who had problems in paying monthly instalments, usually shift to interest only as that cuts on the monthly payments considerably. But with these new rules remortgaging and entering into an interest only plan would be tough for many and chances are high that more mortgage holders would face repossession.

However, there are still ways. There are companies that would help you sell your house fast. You can look for estate agencies in your area to get a quick buyer. Or you can talk to the cash buyers that provide fast sale of homes. By selling your house fast you can clear the mortgage debt in full and avoid the risk of repossession.

Repossession makes things seriously ugly; it damages your credit report and makes it difficult to get loans afterwards. So try your best to avoid it – if refinancing is not possible and you cannot switch to interest only mode, then sell off your house fast to the cash buyers and get rid of the problem.

You can talk to any of the financial advisors and experts any time for the right solution.

About the Author:

Melissa is a writer and property marketer; she writes for many popular blogs out there. Get in touch with her @rogersmelissa42. Some information in this article are taken from moneyweek.co.uk