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Mortgages - Repayment Options
Are You Paying Interest Or...?
There are three main types of
mortgage repayment options available:
1. Repayment (Capital & Interest)
Mortgage
You make monthly payments to the lender over an agreed number of years (the
'mortgage term'). Your payments will gradually pay off the whole amount that you
have borrowed as well as the interest.
Provided that you make all the
payments that have been agreed with the lender, a repayment mortgage guarantees
to repay the whole loan by the end of the term.
2. Interest Only Mortgage
With this method, you
make monthly payments to the lender that cover only the interest on the loan.
They do not pay off any of the amount you have borrowed.
Usually separate payments are made
into a
savings or investment
scheme, to build up a lump sum to pay off the amount originally borrowed. It is
your responsibility to make sure you have sufficient funds available to repay
the loan at the end of its term.
As the mortgage is reliant upon an
investment vehicle to repay the borrowing over the agreed mortgage term, their
is no guarantee that the borrowing will be repaid.
3. Offset Mortgages
Offsetting gives you the ability to link your mortgage to your current and/or
savings accounts and instead of receiving interest on the monies within these
accounts, the interest is offset against your mortgage payments due.
The mortgage can
be set up on either a Repayment or Interest Only basis.
Generally there is no built in
life cover with any method of mortgage repayment so you should consider
effecting a life assurance
policy to cover the amount borrowed should you die during the
mortgage term.
If you wish to discuss the features,
advantages and disadvantages any of these options in greater depth please
contact our advisors
Partners: Kenneth Harrington & Katherine Harrington
Harrington & Horne Financial Services are Independent Financial Advisers which
are directly authorised and regulated by the Financial Services Authority
Head Office: 31 Southdown Avenue, London W7 2AG
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