Repayment Methods
What are your options?
When it comes to repaying your mortgage, there are two main options: a repayment mortgage, or an interest only mortgage.
Some lenders will allow a combination of the two.
Repayment Mortgage (also called a Capital & Interest Mortgage)
Your monthly payments gradually pay off the amount you owe as well as paying the interest charged on the loan. A repayment mortgage is simple, straightforward and easy to understand, and providing you make all the agreed payments, the loan will be fully paid off by the end of the mortgage term.
Interest Only Mortgage
Your monthly payments cover only the interest on the loan. They do not pay off any of the capital. So, at the end of the mortgage term, assuming you have made all the interest payments, you will still owe the same amount that you initially borrowed. You will need a lump sum available to repay this amount at this time.
Typically, you will need to pay separately into a savings or investment scheme to build up a lump sum to repay your mortgage. It is your responsibility to make sure you have enough money to repay the mortgage at the end of the term, otherwise you could lose your home.
Combination Mortgage
Many Lenders will allow you to combine both repayment methods. For example, you may have had an earlier mortgage on an Interest Only basis and are using an Endowment Policy to help to repay.
When re-mortgaging, applying for a further advance arranging a new mortgage, you may want maintain your original loan on the ‘Interest Only basis but repay further borrowing using a ‘Repayment Mortgage’.