According to the financial service authority in the UK, four out of every ten households have an interest only mortgage loan. The basic advantage of interest only mortgages is that their monthly payments are much lower than capital repayment loans. This is due to the fact that only the interest only element is repaid & none of the capital. Therefore the fundamental difference is that the monthly payments are lower than its counterpart. The resultant effect is that homeowners get to enjoy more of their income each month.

The benefits
The greatest benefit as mentioned before is that you have more money to spend every month or save for the future. You only have to pay the interest on the capital each month and not the capital itself. Since the rate of interest can be fixed or variable, you are free to choose the one more suited to you. With the recently unprecedented 0.5% Bank of England base rate, the uptake of tracker rates is currently proving the most popular product.

In 2008 when the Bank of England base rate did fall as low as 0.5% the people who were lucky enough to have such deals ended paying virtually nothing. This was due to the fact that some early trackers has a Bank of England base rate minus x%. If the 'x' was greater than 0.5% then mortgagors could actually be in a negative interest rate scenario! Conversation was rife the banks & building societies could owe their customers. Seemingly not!

However, with the mortgage market outlook remaining gloomy in May 2011 & seemingly remaining so until the end of the year, much speculation exists that interest rates are set to rise & may start ringing alarm bells. Therefore, this could see the re-emergence of the interest only remortgage market & with it people jumping onto fixed rates.Fixed rates by nature will guarantee the monthly mortgage payments for a set number of years - normally from 2 years up to a maximum of 5 years. Occasionally lenders such as Coventry Building Society or Godiva Mortgages have been known to offer 10 year fixed rates.