Repayment mortgage
With a repayment mortgage, your monthly payments cover both the borrowed capital and the interest on the loan.
As the term progresses, the outstanding amount on the loan decreases. Provided you have made all your payments on time, the entire loan will be repaid by the end of the term. This approach does not require a separate repayment vehicle and avoids the risks linked to investing.
If you remortgage, you might be tempted to extend the repayment date to reduce your monthly payments. However, this will mean that the total amount you repay will increase over time.
Interest-only mortgages
With an interest-only mortgage, your payments to the lender cover only the interest on the loan; they do not repay any of the capital. The total amount of your debt remains unchanged over time, and the full loan sum must be repaid to the lender at the end of the term. You will need to ensure you have that money ready.
To make this final payment, you can invest to build enough capital to repay the loan. Some investment options may have tax benefits, and when you move or remortgage, your investment can usually be transferred to the new mortgage. However, there is no guarantee that your chosen investment will grow enough to cover your loan, although you can generally increase your contributions if the situation seems promising.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
Ready to speak with an adviser?
Request a call back
Gain a clearer understanding of your current circumstances and the options accessible to you by arranging a consultation with an independent financial adviser.
Where we are
HCF Partnership
Ground Floor, 8 Beaumont Gate,
Shenley Hill, Radlett,
Hertfordshire, WD7 7AR