There are three options for you to choose from in repaying your mortgage, these are: repayment, interest-only, or a combination of the two.
The most popular option, and the one that is the most widely available is a repayment mortgage. With a repayment mortgage, you’ll make monthly repayments for a pre-arranged period of time until you’ve paid back both the capital and the interest.
This means that your mortgage balance will get progressively smaller, month by month, and provided that you keep up with the repayments, your mortgage will be repaid at the end of the term.
You should bear in mind that when you start your mortgage, the repayments will mainly be coming out of the interest amount, so should you decide move house or repay the mortgage in full in the early years, you’ll find that the amount that you owe will not be too different to the starting figure.
With an interest-only mortgage you will only pay the interest due on the amount you borrowed each month. So, while your monthly payments will be less than they would with a similar repayment mortgage, you will still owe the amount you originally borrowed when you reach the end of the mortgage term.
Lenders will make sure you have a repayment strategy in place, so that you’ll have money to pay off the capital at the end of the mortgage. Different lenders will obviously have different criteria for meeting their strategies, but the repayment plan will often mean paying regularly into savings or investments and could include pensions and other properties.
If you do decide to follow an investment plan, the responsibility to ensure that you can pay what’s owed on the capital at the end of the mortgage falls on you, however your lender will also check on this at least once during the repayment period. If the plan is not on track, then it will be very difficult for you to remortgage or get the loan restructured.
It is fairly common for lenders to request a larger deposit amount if you have an interest-only mortgage. If you have a substantial deposit and are considering an interest-only mortgage you may want to get financial advice to work out the best repayment method.
There are a number of lenders who offer mortgages on a part-repayment and part-interest-only basis. This option means that at the end of the term some of the mortgage capital will still be owed and will need to be repaid.