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With an Interest Only Mortgage you pay interest only on the amount you have borrowed. The amount you owe never goes down, because you do not repay any capital until the end of the term.
To repay the capital you contribute towards a particular type of investment, or series of investments (known as the “repayment vehicle”), which should provide you with a cash sum large enough to repay the loan at the end of the term
There are different types of Interest Only Mortgages, named to their associated investments. But although the investment may vary, the nature of the mortgage is the same. Some of the different kinds of Interest Only Mortgages include: Pension Mortgages; Endowment Mortgages and ISA Mortgages
Important Points
 Remember that the value of any investment can go down as well as up.
If an investment performs badly, it may not provide you with enough money to repay the loan. It is your responsibility to make sure that you have enough to repay the loan at the end of the term.
Investments associated with an Interest only Mortgage are portable, which means that you can keep them, or add to them and link them to your new mortgage if you move home.
The original amount that you borrow never goes down. If you sell your home, you will need to be able to repay that amount.
With an Interest only Mortgage, you will normally have to arrange at least two transactions: the mortgage, and the investment.
Even though an Interest Only Mortgage does not always require a life assurance policy, it is advisable to arrange one (at the very least “term assurance”) to make sure that the loan can be repaid if you die. If you do not do this, the property may have to be sold in order to repay the mortgage.
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