Low Start and Deferred
Low Start and Deferred
mortgages
Low Start mortgages explained
Relatively popular in the early 1990’s when interest
rates hit a peak of 15.4%. They were designed to assist
the borrower to keep down costs in the early years,
often by deferring capital repayments during a
specified initial period.
Low start mortgage
Designed to assist the borrower to keep down costs in the early years, often by
deferring capital
repayments during a specified initial period.
Borrowers must be aware that payments will increase later, and that no capital
will have been repaid at
that point.
- A low start mortgage involved a large reduction in the
interest rate in year one, gradually reducing over an
initial term so that the increase in interest rates was too
dramatic.
- Unpaid interest was added to the outstanding capital
balance
- A deferred mortgage differed in that the deferred
interest was the same amount for an initial set period.
The jump at the end of the deferred period was
dramatic.
- Attractive to those who want to maximise the loan and
minimise the repayments in the early years.
Deferred interest mortgage
In the early years, some of the interest due is not charged to the borrower, but
is instead added to the
capital.
This can be called a low start mortgage but is really called a
deferred interest mortgage. This can be unattractive to people borrowing more than 90% loan to value,
especially in times of falling
house prices, as there is a greater danger of negative equity.
Attractive to those who want to maximise the loan and minimise the repayments in
the early years.
Borrowers must be relatively sure of having an increasing income.
For a mortgage enquiry please contact
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