Mortgage Repayment Types
When it comes to mortgage repayment types, there are two options of capital and interest or interest only. However, in some situations, lenders will allow you to combine the two methods.
Capital & Interest
A capital and interest mortgage works the same way as most types of loan. You make regular monthly repayments to the lender; the repayment is made up of capital (repaying the amount you initially borrowed) and interest. Provided you keep up the correct payments, at the end of your mortgage term you will have repaid the loan in full.
The longer the period you borrow over, the more interest that you will pay overall. This is also true of Interest Only and Split mortgage described below.
With an interest-only mortgage, as the name suggests, you only pay the interest charged by the lender. This means you need to some way to save the money to pay off the capital at the end of the term. There are a few main ways to do this:
- Endowment policies
- Pension plans
- Other Investments
- Lump-Sum Overpayments
- Sale of Property in the future
Most investment vehicles used to pay off the loan are not guaranteed to make enough money to do so. This could mean that there is a shortfall and you would therefore still have a debt outstanding at the end of the term.
There are other ways in which you could repay an interest-only mortgage i.e. if you were buying a property to let out, you could sell the property at the end of the term and repay the mortgage that way. Additionally, some lenders will allow you to take an interest-only mortgage (without repayment product) and convert it to capital and interest at a later date.
Since the Mortgage Market Review in April 2014 the ability to take an interest mortgage has been severely limited as it was felt that too many mortgages being taken had inappropriate or unrealistic means to achieve full repayment.
The exception to this is Buy to Let mortgages where interest only is fully accepted by the lenders.
Sometimes lenders allow you to combine both repayment methods.
If you have any questions or would like to find out further information regarding mortgage repayment methods, contact us today for mortgage repayment advice.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up the repayments on your mortgage.
Mortgages from over 50 lenders
Over 17 years Experience With Excellent Customer Service
5* Reviews from Satisfied customers
Can I get approved for a mortgage? Getting approved for a mortgage can be a stressful process as it is one of the most important steps in the home buying or remortgaging procedure. Here at Stuart Brown we are available to help you through the process of gaining approval for a mortgage and can offer you expert advice before you submit your application.
“Stuart and Sharon have arranged a buy-to-let mortgage, a mortgage for our first home together, a re-mortgage and have now helped us port over our mortgage to a new house. The service they have provided has been consistently amazing, especially as our purchases have never been straight forward. I would recommend them to anyone.” Dominic, Surrey
“Stuart was recommended to me by a friend and I would certainly continue that recommendation. He is very thorough and ensures you know all the options. Stuart makes the process clear and you feel informed the whole way. Thanks Stuart” Danielle C, Hemel Hempstead
“Stuart is an expert in his field, giving great objective advice after careful and deliberate diagnosis of what we were after. I can confirm he is also a very patient man. Highly recommended!” Alex C, Leighton Buzzard
“Remortgage quickly sorted out today via phone/email. All options explained and discussed and I’m very happy with the outcome. Thoroughly recommend.” Craig B, Sunny Scotland
Book An Appointment If you would like to arrange a telephone call or meeting, please fill in your details below and we will respond as soon as possible.