Return to the Mortgage Glossary Home to view explanations for all mortgage terms. What follows is the definition for the term Interest Only Mortgages as it relates to mortgages in the UK. Interest Only MortgagesAn Interest Only Mortgage is a mortgage product whereby for the duration of the loan, payments are only made to cover the interest that is accrued on the debt. This means that at the end of the loan period, the person taking out the mortgage will owe exactly the same amount that they initially borrowed. As such, an interest only mortgage will normally be taken out alongside another financial product that will be used to pay off the initial debt at the end of the mortgage term. The product used to pay off the loan could be one of a number of products, such as an endowment policy, an ISA or even a pension plan. The benefits of this approach are that you could benefit from potentially large gains in the stock market over the period of your loan. This could mean that your endowment for example pays off your mortgage and also provides you with an additional lump sum. However, it is also higher risk because you could find yourself not having enough money to pay off the initial debt at the end of your mortgage.
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