Deferred Interest Mortgage

What is a Deferred Interest Mortgage?
Deferred Interest Mortgages were introduced in the 1980s so that those who had limited income but potential for greater earnings levels in future could obtain mortgage finance.

How does a Deferred Interest Mortgage work?
Basically, when taking a deferred interest mortgage the borrower pays a discounted interest rate for the initial period and then a premium rate at a later date to recoup the discount.

Types of Deferred Interest Mortgages.
One version of a deferred interest mortgage is the stabilized payment mortgage. With this kind of deferred interest mortgage the borrower chooses an interest rate for a set period, and the borrower makes payments at this rate, whilst the mortgage account is charged with the actual interest rate. At the end of the period there will be either an underpayment or an overpayment, which leads to adjustments in future repayments of the deferred interest mortgage.

What are the Benefits of a Deferred Interest Mortgage?
The benefit of a deferred interest mortgage is that the repayments can be set to suit the household budget, but borrowers can be tempted to set the repayments too low and leave themselves with problems later on.