Interest Only Mortgages: Negative Equity

Over 2.9 million people pay off the mortgage repayments by using an interest only mortgage product, 45 percent of those do not have any investment in place to repay the capital on the property according to investment group LV.

41 percent of the homeowners who are paying interest only repayments and have no investment plan in place, have said they intend on selling the property and cashing in the equity that they hope has built up in their home.

Even in the property crisis and falling house prices, many homeowners believe that they will also buy another property once they cash in the equity and also pay off the existing mortgage.

However it’s expected by the end of 2009 around 16 percent of homeowners on interest only mortgages will be in negative equity. Basically they will owe more than their property is worth. If property prices continue to fall like experts warn, the strategy of paying off the property loan with the equity may no longer be suitable.

Source: AP. Google

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• 100% mortgage borrowers now facing negative equity
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• UK houses prices to tumble a further 17 percent
• Homeowners suffering negative equity need more help

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