Two types of mortgages

The two types of mortgages that you can choose from are repayment and interest only. Read on to understand more.

09:13 23 June 2013

You are typically given two options when taking out a mortgage loan. These are repayment (capital and interest mortgage) and interest only (ISA, pension, and endowment mortgage). 

 

Repayment

 

This is the more popular type of mortgage. With this option, the borrower will make monthly repayments, which include the capital amount borrowed, plus the accrued interest.

 

On the mortgage statement, that is usually sent by the lender once a year, it will show that the outstanding balance decreases each time you make monthly repayments.

 

At the end of the term, you’ll become the proud owner of the property. With this option, you are typically allowed to make overpayments to reduce the capital amount borrowed sooner. This will also reduce the interest. 

 

Interest Only 

 

With this type of mortgage, borrowers only pay for the interest. However, they are required to take out an alternative repayment vehicle such as pension plan, ISA, or endowment policy.

 

The biggest advantage of this option is that monthly repayments are extremely low as borrowers only pay for the interest accrued. At the end of the term, the borrower must pay off the mortgage.