Repayment Methods Explained

A Repayment method is a way of determining how you will repay the money that you borrowed from the bank to buy your new home or remortgaged. Your monthly direct debit may be made up of just interest charged on the loan, known as an Interest Only Mortgage or may include some of the money that you borrowed so your loan is reducing, known as a Repayment Mortgage.

Explained

Repayment Mortgage

This type of mortgage is the most common mortgage taken today mainly because it is quite difficult to obtain an interest only mortgage.

Capital Repayment mortgages are repaid through your monthly mortgage payment that includes interest charged by the bank and a portion of the capital sum you borrowed.

You will pay more interest in the early years of the mortgage and more capital towards the end of the mortgage.

This type of mortgage can be combined with any of the Interest Rates Types we talk about in this section, this is of course dependent upon the individual lenders allowing this.

Interest Only Mortgage

If you have an Interest Only mortgage, your monthly payment will include the interest charged by your bank on the money you have borrowed. You will usually make a secondary payment into some sort of vehicle which you will use to repay the entire mortgage balance at the end of the term such as savings, preferably through an investment plan. Boosted either by interest or a good rate of return on your investments, your savings should be designed to increase in value over the term of the mortgage, giving you enough money to repay the mortgage debt at the end of the mortgage term.

There are risks with an Interest Only mortgage with the main risk being that you may not be in a position to repay the mortgage at the end of the term. you should ensure that you review any savings or other assets you plan to use to repay the mortgage to ensure they will have sufficient funds.

If you are in a position now where your mortgage is due to be repaid and you do not have the means to repay it, please call us and one of our adviser will guide you through possible solutions.

Only a qualified Financial Advisor, can give you advice on pensions and investments, they will be able to give advice on the most suitable of these methods for your circumstances. They will calculate and let you know how much you need to pay into your investment plan to ensure you have sufficient money to repay the mortgage at the end of the mortgage term. If you do not have a Financial Advisor, we will be happy to recommend one.