Capital and Interest repayment
Each month you pay interest and some of the capital so your mortgage reduces each year and is designed to fully repay the mortgage at the end of the term. This method is the only one which is guaranteed to repay your mortgage in full as long as you make your monthly payments.
Interest only
You pay the mortgage lender just the interest each month. As you are not paying anything towards the capital the mortgage amount does not change. Instead, you pay off the mortgage at the end of the term by one of the following methods:-
Endowment policy
The proceeds of the policy can be used to repay the mortgage. There is no guarantee that the mortgage will be repaid as you are relying on the performance of the fund. The endowment will include life cover should you die.
Pension
You can use the tax free lump sum to assist in repaying the mortgage.
I.S.A.
The amount that is saved can be used to help repay the mortgage.
Lump sum payments
You can decide to opt for an interest only mortgage and make lump sum payments to reduce the capital when you want to rather than on a regular payment basis.
Sale of property
You can repay the mortgage when you sell the property. This is very common for investment properties.
Part repayment and Part Interest Only
Most lenders will allow you to take some of your mortgage on a Repayment and some on Interest Only basis.
This usually appeals to borrowers who have an Endowment policy that will not cover all the mortgage or borrowers who are due other funds (eg inheritance) in the future.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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