“Can you explain the difference between a repayment mortgage and an interest only mortgage?”
We have lost count how many times we’ve heard that question, it’s an extremely common one to hear. But that’s what mortgage advisers are here for.
What is an interest only mortgage?
An interest-only mortgage is pretty much what it says on the tin, during the term of your mortgage you only pay the interest due on the amount you borrowed each month, and repay the capital at the end of the mortgage term.
Therefore, the mortgage amount you originally take out won’t reduce throughout your mortgage term. This does tend to catch people out as once your mortgage term finishes, you will have to pay off the mortgage amount you have.
For instance, if you take out a £400,000 mortgage for a 25-year term on an interest only basis, after 25 years you will have to pay your lender £400,000.
What is a repayment mortgage?
A capital and repayment mortgage is the most common type of mortgage out there. With a repayment mortgage you will pay both the interest and the capital back every month. This differs from the interest only mortgages as the mortgage amount you have borrowed will reduce every month, until it is paid off at the end of your mortgage term.
For instance, if you received a £400,000 mortgage for a 25-year term on a repayment basis, after 25 years you will not owe the lender a penny.
A repayment mortgage offers peace of mind for borrowers, as long as you keep up repayments, you are guaranteed to own your home at the end of the mortgage term.
What are the repayment methods for an interest only mortgage?
The first thing to note is that your lender will want to know exactly how you plan on repaying your mortgage at the end of the term, and there are several repayment vehicles that they will consider:
-Sale of property
-Savings that are readily available
-Cash ISA
-Lifetime ISA
-Stocks and shares ISA
-Investment bonds
-Shares
-Unit trusts
-Other assets you currently own
The requirements vary from lender to lender. There are also other stipulations that some lenders will insists on such as, having a minimum income of £75,000 per year.
Which is best for you?
Well, this is where we come to your aid. Our team of fully qualified mortgage advisers are always on hand to give you the best advice throughout the whole process.
We’ll be on hand to help you every step of the way in obtaining a new mortgage, and our service won’t cost you a penny when you go via our online portal.
Visit our website today and obtain a quick quote with our online mortgage rate tool to see how much you could save on your next mortgage.
I want to remortgage → Mortgagez | Remortgage Calculator
I want to buy a home → Mortgagez | Instant Online Mortgage Calculator
PLEASE NOTE: Article written 25th May 2022. Information contained within this article is likely to change and therefore should not be relied upon or form part of any form of decision making without seeking professional advice. *
YOUR HOME MAY BE REPOSSESSED IF YOU DON’T KEEP UP REPAYMENTS ON YOUR MORTGAGE
Any guidance and/or advice contained within this document is subject to the UK regulatory regime and is therefore restricted to consumers based in the UK. Any technical or regulatory information contained within this document was correct at the time of producing it but as it may be subject to change it should not be exclusively relied upon when making a financial decision. The Financial Conduct Authority does not regulate advice on Buy to Let mortgages.
Article written: May 2022 250522 MZ000254
