Types of mortgage

There are two ways of structuring your mortgage: capital and interest (commonly known as repayment); and interest only. Whichever you choose, you should always remember that your home may be repossessed if you do not keep up the payments on your mortgage.

Repayment mortgages

• Also known as a ‘Capital and interest repayment mortgage’.
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• Your monthly mortgage payment covers cost of the interest, plus the repayment of some of the capital borrowed.
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• In the early years, a greater proportion of the payment is used to pay the interest.
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• Whilst the capital is gradually repaid, the interest portion decreases and an increasing percentage of the monthly payment reduces the amount of outstanding loan until it is fully repaid by the end of the term.
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• The interest you pay will be dependent on whether it is charged on a daily, monthly or annual basis.
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• Repayment mortgages guarantee the loan will be repaid at the end of the term, providing that you maintain your monthly payments.
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• If you or the lender requires life cover, this will need to be arranged separately.
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Interest only mortgages

• The monthly mortgage payments will only cover the interest due and the original capital amount remains outstanding throughout the term of the loan.
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• You are responsible for making arrangements to repay the capital at the end of the mortgage term.
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• You can save money in to some form of savings vehicle (such as an ISA, pension or endowment) and use this to repay the mortgage in one lump sum at the end of the term.
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• These savings vehicles are run entirely independently from your mortgage.
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• Interest only mortgages with separate repayment vehicles are inherently more risky than repayment mortgages, because there is the possibility you won’t have saved enough money to pay off the mortgage at the end of the term.
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• If you fail to make suitable arrangements to repay your mortgage you may not be able to pay off your mortgage at the end of the term and your home may be at risk.

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By Amar Dhanota
Senior Mortgage Consultant
Mortgages For Professionals
T: 020 7553 3251
E: ad@mortgagesforprofessionals.com
W: www.mortgagesforprofessionals.com

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Your home may be repossessed if you do not keep up repayments on your mortgage. There may be a fee for mortgage advice, the precise amount of the fee will depend upon your circumstances but we estimate that it will be 1% of the loan amount.

Mortgages for Professionals is a trading style of Expertinfo Ltd, which is an Appointed Representative of Bond Finance Ltd.