YOUR MORTGAGE REPAYMENT OPTIONS
Repayment
With a repayment mortgage, you make monthly repayments for an agreed term and these payments consist of repaying the capital amount borrowed, together with the accrued interest.
This means that your mortgage balance reduces each month and is paid in full by the end of the term.
A popular choice, one advantage of a repayment mortgage is that you do not need a stock market linked investment, which is required for an interest only mortgage. Therefore, you reduce your risk and you are also less likely to suffer from negative equity because your mortgage balance decreases, month-on-month. However, it is important to be aware that when your mortgage starts, the repayments will mainly consist of interest. So, if you want to move or repay your mortgage, the overall balance will not have decreased by much.
If you decide on a repayment mortgage, you then need to consider if you want an interest rate which is fixed for a period, or if you would like a variable rate, where the interest rate can go up or down.
Interest-Only
With an interest-only mortgage your monthly payments are made up of the interest due on the amount borrowed. Because you will not be repaying any capital, at the end of mortgage term, the full amount of the loan is still outstanding.
To repay the capital at the end of the loan, the mortgage lender will require an approved investment or plan. This can be through an endowment policy, stocks and shares, ISA, pension or from the sale of the mortgaged property.
In a similar way to repayment mortgages, you can fix the interest over an agreed term, or it can be paid back at a variable rate.
Part and Part
Some lenders also provide mortgages where part of your mortgage is on a repayment basis, with the remaining part as interest only. With this type of mortgage your monthly payments tend to be lower than a repayment mortgage, but you will still owe some of the mortgage capital at the end of the term. It is important therefore, that there is a relevant plan in place to cover this.
Call us to discuss the most suitable mortgage for you.
