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Repayment Mortgage

That is the simple, low risk mortgage repayment method which involves making a single payment to the financial institution monthly, a part of which pays interest on the loan with the remainder going towards decreasing the total amount due.

A benefit of this sort of repayment is that because each and every repayment consists of part-interest and part-capital, you are slowly reducing the principal of the loan. The lower the principal, the less interest you pay over the lifetime of the loan.

A drawback to repayment mortgages or remortgages is, in contrast to interest-only mortgages, there is no all-in-one cover for life assurance or payment protection, for example. You will need to arrange and pay these independently if you want them so you might find an interest-only mortgage more suitable if this is likely to be a problem for you.

Interest-only Mortgage

Interest is paid on the complete amount of the loan for the entire term of the mortgage. This sort of mortgage allows you to pay the minimum possible monthly outlay to the lender because no capital is included in the monthly repayment. As the repayments to the loan provider are smaller, you will need to invest in some other product so that you can make certain you save enough money to pay off the loan at the conclusion of the term.

The three most common forms of investment utilized to accompany an interest-only mortgage are Endowments, ISAs and Pensions. This sort of mortgage is slightly riskier than a repayment remortgage because you are basing your ability to repay the capital of your mortgage at the conclusion of the loan term, in part on the vagaries of the stock market. It is probably advisable to get some independent financial guidance if you're considering this option.

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