Mortgages 
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Repayment Mortgage
With this, you make monthly payments to the lender over an agreed number of years (called the mortgage ‘term’). Most people choose a term of 20 or 25 years for their first mortgage, but they can be for shorter or longer periods. Your payments cover the interest on the loan an also gradually pay off the whole amount you have borrowed (sometimes called the ‘capital’ or the ’principal’).
Will it pay off the mortgage? As long as you make the payments agreed with the lender, the whole loan will be repaid by the end of the term. Be aware that your monthly payments will increase/decrease if interest rates rise/fall. You must make sure that if the payment adjustment does not co-inside with the applied change in interest change (increase) then you pay the difference of you will be left with an outstanding capital amount at the end of the term.
Moving home and remortgaging? If you move home, you can normally transfer the remaining loan to the new property. If you want to switch lenders (either because you’re moving, or if you’re remortgaging without moving home), you will need to repay the outstanding balance with the first lender and start a new mortgage with the new lender.
Is it for you? Repayment mortgages will suit you if you want to be absolutely sure that your loan will be fully repaid at the end of the term. Don’t forget, your monthly payments could increase if interest rates rise. Most lenders used to recalculate the amount on which they charged interest once a year only. This meant that, if you had a repayment mortgage, you would have been charged interest for the whole year on the amount you owed at the start of the year. You wouldn’t get any credit for the fact that the amount you owed was actually reducing each month. These days, many lenders calculate interest on a daily or monthly basis.
Interest only Mortgage.
At one time, most mortgage lenders checked that you has a suitable savings scheme set up, but these days many don’t do this. This will often give you an interest oncly loan and let you sort out how to repay it at the end of the term. The risk to lenders is small, because they can always sell you home to get back the amount you owe. So it’s important that you check yourself that a savings plan has been set up – don’t assume that the lender has sorted it out.
Will it pay off the mortgage? All interest-only loans involve some investment risk in building up a sum of money to repay the loan. With an interest-only loan, it is your responsibility to make sure you have enough money to repay the loan at the end of its term. As long as your investment grows as expected, the mortgage will be paid off. If the investment makes more than expected, you will get a cash bonus after repaying your mortgage. This means you need to set aside money on a regular basis and review the performance of your savings regularly to make sure you are on track to have a big enough lump sum to pay off your loan. If your investment grows more slowly than expected, you may need to increase your monthly payments into to it, top up your savings in other ways, or find an extra lump sum at the end of the term.
Moving home and remortgaging. With an interest-only mortgage, if you pay off the loan (for example when you move home or remortgage) you can carry over the accompanying savings plan to your new mortgage – it’s not a good idea to stop it and start a new one. The savings plan can be earmarked to pay off part, or all, of the new mortgage. If the new mortgage is bigger than the old one, you need to choose a way of repaying the extra borrowing.
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