Mortgage repayment options

The product with the most competitive rate is not necessarily the best mortgage for you. There are quite a number of other factors that may come into consideration when you are making your choice.

 

While the rate may ultimately be the overriding factor that sways your decision, you should at least familiarise yourself with the other aspects of your chosen product, to make sure you are not blindsided by some unexpected cost or restriction.

 

Aside from the rate, the key decision you have to make is between a repayment or interest only mortgage – you are either paying only the interest on the money you have borrowed, or both the interest and a portion of the capital.

 

 

Capital and Interest Repayment Mortgage

With a repayment mortgage your monthly repayments cover both capital and interest on the loan. No other repayment vehicle is needed, but your lender may insist on life insurance in case you die before the mortgage is cleared.

On the plus side, a repayment mortgage is simple, straightforward and easy to understand. It also avoids the risk of investing in the stock market for your repayment vehicle.

However, unlike a pension, ISA or endowment mortgage, repayment loans do not give you the opportunity to benefit from a rising stock market. Also, when remortgaging, people often choose another 25 year repayment mortgage, to keep the initial monthly costs down. This means that the overall total period of your mortgage debts combined increases over time.

 

 

Interest Only Mortgage

With an interest only mortgage, your monthly payments to the lender cover only the interest on the loan (i.e., they don’t repay any of the capital). The full amount of the loan has to be repaid to the lender at the end of the term.

To ensure you can make this final payment, you invest additional funds in investments which are designed to generate enough (preferably more than enough) capital to repay the loan at the end of the term.

On the plus side, you can choose from a variety of investment vehicles, some of which can have tax advantages. And should you move or remortgage, your investment vehicle can usually be reallocated to the new mortgage.

However, unlike a repayment mortgage, the total amount of your debt does not reduce over time. And there is no guarantee that your chosen investment vehicle will grow sufficiently to repay your loan (although you can usually top up your contributions to investments as you go along if this looks likely to be the case).

 

 

How to receive your free mortgage illustration

Experienced, qualified advisors who arrange the best mortgages available handle all enquiries. They have access to every UK mortgage lender and will only approach the lenders who can offer you the best deal, saving you time and money.

 

To receive your free mortgage illustration, you just need to enter some basic information into one of our online enquiry forms.

 

 

 

Either way there’s no obligation, no credit checks will be performed without your consent and there are no brokers fees to pay. Your advisor will reply within 24 hours with illustrations of the best mortgages available from the whole marketplace.

 

Or if you prefer, you can call a fully trained mortgage advisor on 0845 490 0419. It will only take a few minutes of your time today but could save you thousands of pounds in interest payments and will eliminate any worries you may have about getting the best deal possible.

 

 

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Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. Please make sure you can afford the repayments before entering into an agreement.

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