Mortgage repayment options…

There are three types of mortgage repayment options to consider when you are choosing your mortgage:

Capital repayment mortgages allow you to repay the loan throughout the term. Your monthly payment is made up of both interest and capital repayment so that at the end of the term the whole mortgage is repaid. The advantage of this repayment method is that, as long as you make all your payments, the mortgage is guaranteed to be repaid by the end of the term.

If, on the other hand, you opt for interest only mortgage payment, your monthly payment will be made up solely of interest, so that your borrowing will remain the same throughout the term. At the end of the mortgage term, assuming you have not made any lump sum repayments, you will still owe the same amount that you borrowed in the first place. In this scenario it is your responsibility to ensure that either a suitable repayment vehicle (such as an endowment or pension plan) is in place, or that the loan is repaid by means of lump sum repayments or sale of the property. So, while this option does mean lower monthly payments, it also places added responsibility on you, and potentially greater risk.

The final option, so-called ‘part and part’, is to combine the two methods so that you pay interest only on part of the loan and capital repayment on the rest. This might be suitable if you have, for example, an endowment that is not likely to cover the whole of your debt at the end of the term, or where you have increased your borrowing and want the certainty that the additional borrowing will be repaid by the end of the mortgage term.