A mortgage is one of the largest financial commitments most people take on. Buying a property can already be stressful and time-consuming — today, getting the financing right means actively finding and selecting the most suitable mortgage, rather than simply accepting whatever a lender offers.
The two main methods of repaying a mortgage are repayment (capital and interest) and interest only. It is also sometimes possible to set this up using a combination of the two.
A description of these methods is provided below.
The information within this article is purely for information purposes only and does not constitute individual advice. As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments.
Each monthly payment covers both interest and capital, so the amount you owe gradually decreases over the term. In the early years, most of your payment goes toward interest, so the capital reduces slowly at first. Provided payments are kept up in full, this method guarantees your mortgage is repaid by the end of the term.
You pay only the interest each month, meaning the original capital remains outstanding at the end of the term. This means you’ll typically need a separate savings or investment plan to build up enough to repay the mortgage when the mortgage ends. Traditionally this was an endowment policy; today, ISAs and pensions are more commonly used, taking advantage of their tax efficiency.
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