 Repayment Methods
Repayment Mortgage :
With a capital and interest repayment mortgage you make monthly repayments that
covers both the interest on the loan and the repayments of the capital borrowed
itself.
In the early years, much of the monthly repayments will go towards paying the
interest on the loan, however, in the later years the majority of the monthly
repayments will go towards reducing the capital borrowed itself.
A capital and interest repayment mortgage offers the guarantee that the loan
will be fully repaid at the end of the mortgage term, (subject to all
repayments having been met when due).
Interest Only Mortgage :
With an interest-only mortgage you only pay interest on the capital borrowed
over the term of the mortgage. You usually also pay into an investment product
for the term of the mortgage and this will be used to repay the full amount of
the capital borrowed at the end of the mortgage term. Typically, the investment
products utilised with interest-only mortgages include endowments, ISA’s, (or
previously PEP’s), or pension plans.
It should
be noted that these repayment vehicles may not be guaranteed to provide
sufficient funds to repay the loan at the end of the mortgage term.
Combination of Repayment and Interest-Only Mortgage :
With a combined capital and interest repayment mortgage/interest-only mortgage
you will use both of the above methods to repay your loan.
This may happen if you have increased your mortgage borrowing over the years or
moved property and increased mortgage borrowing.
Period of Repayment Mortgage :
Most mortgages have a set term of 25 years, however, the choice of term is
entirely up to you, and can be shorter or longer than this, subject to
individual lender terms and conditions. Obviously, the shorter the term of the
mortgage, the higher the monthly repayments will be.
Before changing repayment method or/and lender you should check if there are any
early repayment charges applicable. So you can make an informed decision before
proceeding.
Your home may be repossessed if you do not keep up repayments on your mortgage.
We can
either be paid commission by the lending institution or charge a fee for
Mortgage Advice. The amount of the fee will depend on your circumstances,
typically 0.5% of the loan amount.
| 
R.J.
Nash
Consultancy Ltd
