Repayment mortgage

Posted on April 14th, 2015

Repayment Mortgage

The most common type of repayment vehicle is a capital and interest (or repayment) mortgage; whereas under this arrangement, the borrower makes a single payment to the lender each month consisting of:

Interest – charged on the outstanding capital. The interest repaid starts at a relatively high level and reduces year by year;

Capital – initially this makes up a very small amount of the monthly payment but over time, the capital element makes up a greater proportion of the payment.

The main advantage of this mortgage repayment vehicle is the outstanding debt is guaranteed to be paid off providing the monthly payments have been paid throughout the term.

On application, applicants are able to opt either a capital and interest mortgage or another type (see interest only); however many applicants choose a capital and interest mortgage; as it’s the more popular and suitable. Mortgage advisors would prefer to see applicants on this type of repayment (capital and interest mortgage) where the outstanding mortgage loan amount is guaranteed to be cleared at the end of the term.

From 2014, regulations have tightened regarding interest only mortgages and most applicants will have to opt for a Repayment mortgage for a residential purchase, unless they have a credible repayment strategy in place for the capital element.

If you require advice on capital and interest mortgages or looking to switch to a repayment mortgage, please speak to one of our experienced mortgage advisers. The repayment vehicle is fundamental to the mortgage plan.

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.


Interest Only mortgage

Posted on April 13th, 2015

Interest only mortgages are a type of mortgage where only the interest is repaid. The full capital amount remains outstanding during the mortgage term and is repaid in one lump sum at the end of the term,

Lenders require evidence that a customer will have in place a clear credible repayment strategy and that the repayment strategy has the potential to repay the capital borrowed.

Repayment strategies may include deposits or investment product(s), pension(s), periodic repayment of capital from irregular sources of income (i.e. bonuses), the sale of another property or other land or other acceptable methods which meet lending criteria.

This means that the mortgage payments each month will be lower than those of a repayment mortgage for a similar loan and term. Where the repayment of capital is an investment the investment runs alongside the mortgage but is separate from it; the cost should be taken into account when calculating the overall costs of the mortgage arrangement.

Every month, you then pay this interest to the lender for the duration of the loan. The lender calculates your monthly repayments depending upon how the rate you have chosen are set. The monthly interest payments may vary dependent on whether the interest rate is fixed or variable. At the end of the loan period, the lender will expect the initial capital they lend you to be repaid in full by whatever means you have arranged.

It is the customer’s responsibility to be able to repay the loan at the end of the term.

If you require advice on interest only mortgages on a residential purchase, please speak to one of our experienced mortgage advisers. There are very few interest only mortgage available since regulations. Mortgage lenders will require bigger deposits/equity to allow you to go on an interest only mortgage. A suitable repayment vehicle alongside your interest only mortgage is required. Please speak to one of our experienced advisers, we’re based in Manchester. We are mortgage brokers and will find the right mortgage lender.

A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.