Product Library: Interest Only/Repayment

As well as choosing which type of interest rate to select, you also have to decide between an Interest Only or Repayment mortgage. This impacts on not only the size of your monthly payments, but also on what happens at the end of your mortgage.

Payments to an Interest Only mortgage, as the name suggests, only go towards paying off the interest of the mortgage you took out. As a result, the payments are lower, but at the end of the mortgage you will still owe the mortgage company the entire amount you originally borrowed. As such, it is strongly advised that in addition to the monthly mortgage payments, you also implement some kind of investment or savings plan to pay off the mortgage at the end of the mortgage term.

If you choose a Repayment mortgage, also known as a Capital and Interest mortgage, your monthly payments pay off interest and some of the capital sum you originally borrowed. In the early years, your monthly payments are predominantly paying the interest as the sum you have borrowed will still be fairly large. As time passes, and you pay off more of the capital sum, the interest you need to pay each month will decrease. As such, more of your monthly payment will be paying off capital, thereby reducing the capital sum even quicker.

A Repayment mortgage is the only way of guaranteeing that the mortgage will be paid off at the end of it's term.

It is important to remember, however, that you are able to change the method of payment of your mortgage. This can be done when you remortgage, and increasingly, it can also be done in the middle of your mortgage term or special rate period.

Please note your home may be repossessed if you do not keep up repayments on your mortgage.

If you would like any further help or information on any aspect of mortgages, please use the 'contact us' feature, or call on 0800 169 2827.