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.

As from 2014, regulations have tightened regarding interest only mortgages and most applicants will have to opt for a Repayment mortgage for a residential purchase.

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

Under an interest only mortgage, the borrower pays just interest to the lender each month. Capital is then paid at some future date, often from an investment such as:

  • An endowment policy. This type of policy used to be the very popular way to repay the mortgage in the 1990s. This low cost version of this type of policy promised the best returns. However in recent years the policy type has received adverse publicity due to many falling short of its projected targets.
  • An ISA or other investment products. Offers greater tax benefits.
  • A Personal Pension. Less Common nowadays.
  • Some lenders (only a few) will accept sale of existing properties or inheritance. This depends on the loan to value or the deposit put down.
  • An interest only mortgage alongside an investment vehicle, appeals to someone whom is confident their investment will cover the capital when it comes to be repaid, however this is not guaranteed.

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.