Repayment or Interest Only

Repayment Mortgage

This is the most popular and most widely available mortgage repayment option.
With a repayment mortgage you’ll make monthly repayments for an agreed period of time (known as the term) until you’ve paid back both the capital and the interest.

This means that your mortgage balance will get smaller every month and, as long as you keep up the repayments, your mortgage will be repaid at the end of the term (usually 25 years).

Be aware that when you start your mortgage, the repayments will mainly be interest, so if you want to repay the mortgage or move house in the early years, you’ll find that the amount you owe won’t have gone down by much.

You must also then decide the type of repayment mortgage you want, whether it’s to have the interest rate fixed over time, or variable, which means the interest rate can go up or down.

Interest Only

With an interest only mortgage, your payments to the lender cover only the interest on the loan (i.e. they do not repay any of the capital). The total amount of your debt does not reduce over time and the full amount of the loan still has to be repaid to the lender at the end of the term, so you will need to ensure that you have that money ready.

So you can make this final repayment, you can invest so that you generate enough capital to repay the loan at the end of the term. If you choose to invest, some investment vehicles can have tax advantages and when you move or remortgage, your investment vehicle can usually be relocated to the new mortgage.

However, there is no guarantee that your chosen investment vehicle will grow sufficiently to repay your loan (although you can usually top up your contributions to investments as you go along if this looks likely to be the case)