Mortgage type

Repayment Mortgages

Your mortgage debt is divided into capital repayments (ie repayment of the money you borrowed) and interest payments (ie repayment of the interest you're being charged for the loan).

As you pay off your mortgage every month you're paying off a bit of capital and a bit of interest until the full debt is repaid.

You usually pay off mostly interest in the early years and then gradually more of the capital debt. It may seem as if this is costing more but that's because unlike the other types of mortgages you're paying off the capital and not just the interest.


Interest-only mortgages

The repayment mortgage option

With a repayment mortgage, the monthly payments are made up of interest and a portion of the capital debt.

This means that, provided you keep them up to the end of the mortgage term, you are guaranteed to clear what you owe.




The interest-only mortgage option

As the name suggests, with an Interest-only mortgage, the monthly payment includes only this element of the debt.

The upside of this is that the monthly cost is considerably lower than for a comparable repayment mortgage.

The downside is that at the end of the mortgage term you still owe the original amount you borrowed.

And if you can't repay it, your mortgage lender is perfectly entitled to repossess your home.

that's why, if you go for this option, you need to organise a way to repay the capital debt.

Unless you can be certain of a sizeable inheritance or other windfall, this means saving as you go along. There are several ways to do this