Repayment methods
There are two methods of repayment, Capital & Interest and Interest only. Which you choose will depend on your attitude to risk – i.e. the chances of not being able to pay back the loan at the end of the term – and your circumstances at the time. Your mortgage adviser will guide you in the right direction.
Capital & Interest
This method is also known as a repayment mortgage. A portion of each monthly payment to your lender is used to meet the cost of the interest charged and the balance is used to repay the capital loan. The lender will work out an average monthly payment based on the interest rate at the time of the loan. In the early years the largest part of each monthly payment will be to pay the interest rate. Over the years, as the capital element reduces, this moves the other way. Keeping up the mortgage payments ensures that the loan will be paid off at the end of the term
Interest Only
Your monthly payment covers the interest charge only. The outstanding mortgage remains the same throughout the agreed term and needs to be paid back at the end. If the mortgage is for your home you need to ensure that you have savings or investments in place to build up the necessary capital. If the mortgage is for a holiday home or buy-to-let property, selling the property might raise the capital. As you can see, there is an element of risk in this type of mortgage as there is no guarantee that the capital will be accumulated.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The precise amount will depend on your circumstances and/or amount of borrowing. We will notify you of any costs before any advice is provided.
