Repayment Options
Are You Paying Interest Or...?
There are three main types of mortgage repayment options available:
1. Repayment (Capital & Interest) Mortgage
You make monthly payments to the lender over an agreed number of years (the 'mortgage term'). Your payments will gradually pay off the whole amount that you have borrowed as well as the interest.
Provided that you make all the payments that have been agreed with the lender, a repayment mortgage guarantees to repay the whole loan by the end of the term.
2. Interest Only Mortgage
With this method, you make monthly payments to the lender that cover only the interest on the loan. They do not pay off any of the amount you have borrowed.
Usually separate payments are made into a savings or investment scheme, to build up a lump sum to pay off the amount originally borrowed. It is your responsibility to make sure you have sufficient funds available to repay the loan at the end of its term.
As the mortgage is reliant upon an investment vehicle to repay the borrowing over the agreed mortgage term, their is no guarantee that the borrowing will be repaid.
3. Offset Mortgages
Offsetting gives you the ability to link your mortgage to your current and/or savings accounts and instead of receiving interest on the monies within these accounts, the interest is offset against your mortgage payments due.
The mortgage can be set up on either a Repayment or Interest Only basis.
Generally there is no built in life cover with any method of mortgage repayment so you should consider effecting a life assurance policy to cover the amount borrowed should you die during the mortgage term.
If you wish to discuss the features, advantages and disadvantages any of these options in greater depth please contact our advisors
