Mortgage Repayment
Repayment
A repayment mortgage pays off the amount of money you’ve borrowed plus the interest lenders charge.ith this type of mortgage, you gradually pay off the amount borrowed over an agreed number of years. Our monthly payment covers the interest they charge for the loan. It also repays part of the money borrowed. In the early years, the largest part of the monthly payment is interest. However, as the mortgage balance reduces, so does the interest portion. This means that towards the end of the mortgage, most of it is going towards paying off the amount of money you’ve borrowed. The mortgage will be repaid at the end of the mortgage term providing you maintain the repayments.
As life assurance cover isn’t built in, we recommend that you consider taking out some form of life cover to repay the mortgage if you die before the end of the mortgage term.
Interest Only
There are a number of different variations of this type of loan but they all have one feature in common. Namely that the monthly payment to the lender consists only of the interest charged for the mortgage. In order to repay the capital borrowed on an interest only mortgage, you’ll have to arrange an investment product. You’ll need to make regular payments into this product which will be designed to repay your mortgage at the end of the term.
- Examples of investment products are:
- Endowment policy
- Pension Policy
- Individual Savings Account
- Unit Trusts
However there are other non-investment options to repay an interest-only mortgage that are acceptable to some lenders:
- Inheritance
- Sale of mortgaged property
- Sale of other property
- A structured plan to convert to repayment at a future time
- Gratuity
- Lump sum overpayments from bonus, commission etc
As life assurance will not be built into repayment and interest only mortgages, we recommend that you consider the need for this type of insurance protection.
