There are a few options when it comes to paying your mortgage. These options include re-payment, interest only and part interest only. It is important that you understand what each of these options mean and that you know exactly the basis on which you will be paying for your mortgage. It is a good idea to seek advice on the re-payment options that may be available to you.
What does repayment mean? Repayment basis is when the monthly payments that you make to the lender goes towards both the interest part of the loan as well as the capital.
Due to the interest and capital being paid this means there is not the need for a repayment vehicle to be put in place and that you will be mortgage free by the end of the mortgage term if you have kept up to date with all payments.
Interest only mortgage
Interest only basis is when the monthly payments made to the mortgage lender cover the interest only meaning you do not pay off any of the loan amount. Payments to an interest only mortgage will be less than that of a repayment mortgage, however the outstanding balance of the loan taken will remain.
Due to not paying off the loan it is important that you know prior to taking the mortgage how you plan to pay the loan off at the end of the term. It is essential that you understand what repayment vehicle you are going to use for this and would be advised that you seek further financial advice.
Part and Part
A third option is to pay part interest only and part repayment. What this means is that monthly payments will be split between repayment and interest only. At the end of the mortgage term, you would still have a remaining balance to pay on the loan. You would need to pay this using a lump sum, therefore it is important you have a repayment vehicle of some sort in place.