The mortgage market may appear extremely complicated. However, the two main types of mortgage are - Repayment and Interest Only.
Details on how mortgage interest can be calculated are described on the Interest Rates page. If you require further information please contact us.
Every month the payment you make to the lender pays back some of the loan capital i.e. what you borrowed and some of the interest. That way, at the end of the mortgage term, the loan is fully repaid on the assumption that all payments due have been made.
- You know the loan will be repaid at the end of the mortgage term.
- Overpayments reduce both the capital and interest payments.
- In the first few years of the mortgage most of monthly repayment is interest.
- If you move home regularly, little of the capital will be repaid.
- There may be penalties for making lump sum or regular overpayments.
Your monthly payment only pays the interest on the loan. You do not repay any of the loan capital i.e. what you borrowed until the end of the mortgage term. Payments to an investment product e.g. ISA, pension or endowment are usually used to repay the loan capital. However capital may be paid from other sources.
- If the investment product delivers more than is required to repay the mortgage, then you receive the difference as a cash lump sum.
- Moving home regularly does not affect the fund in your investment product.
- If the investment product delivers less than is required to repay the mortgage, there will be a shortfall and you will need to pay the balance from other funds.
