The types of mortgage and how they are repaid

Of all the responsibilities associated with adulthood, taking out a mortgage is one of the biggest ones – at least in financial terms. Effectively a mortgage can represent the biggest single purchase that the average person will make in his or her lifetime, thus it is important to make sure you have found the correct type of mortgage to suit your needs, before making the commitment. There are a number of different types of mortgage available, and also a number of different rates and criteria, but ultimately there are only two available ways to pay back the majority of mortgages. The first of these involves repaying both the loan and the interest at the same time, while the second sees you pay back the interest over the time that you have the mortgage and then paying off the capital sum when it ends.

Repayment Mortgage

This type of mortgage payment plan consists of two different parts – the interest and the capital. It sees you take on regularly repaying a proportion of the initial capital sum you borrowed in addition to also paying off the interest accrued on that sum. This type of mortgage plan sees you owning your property completely at the conclusion of the term of the mortgage and represents a simpler and far less risky way of meeting mortgage payments. Thus this is likely to be the preferred option of your mortgage lender, but it is also more expensive in the short term – as your monthly repayments will involve both the original sum and the interest, so you must be able to meet these.

Interest-Only Mortgage

With this type of mortgage agreement, your monthly repayments will only be on the interest accrued by your capital sum, which means that you will still have to meet the total original capital amount at the end of the mortgage term. The main advantage of this type of agreement is that the short-term monthly repayments are far lower, but you will need to plan ahead for how you will meet the capital payment required at the end. Furthermore your lender will require some form of guarantee that you will be able to meet this demand before they are prepared to accept you for an interest-only mortgage.