Mortgages

Repayment Methods

Repayment (Capital and Interest)

Repayment mortgages are designed so that you repay the money that you have borrowed over a period of time, usually 25 years, but it can be more or less to suit your own requirements. You pay interest and some of the capital to the lender on a monthly basis and the amount you owe therefore reduces regularly.

Provided that all your payments are made you are guaranteed to have repaid your mortgage at the end of the term. These types of mortgages are popular with borrowers who prefer to remain cautious and would prefer to see their debt reduce year on year.

If you would like more information please contact us.

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Interest Only – Investment Backed

With this type of mortgage your monthly payments just cover the interest due to the lender and do not include any capital repayments. The amount borrowed does not decrease and therefore must be repaid at the end of the mortgage term.

Although the payments to your mortgage lender will be lower than an equivalent repayment mortgage, you need to pay into a suitable investment which will generate sufficient capital to repay the loan at the end of the mortgage term.

Typical investments include ISAs, Endowments or Pensions. This type of mortgage can offer greater flexibility, however, unlike the repayment mortgage, offers no guarantee that the debt will be repaid at the end of the mortgage term.

If your investment policy fails to reach its target amount you will be left with a shortfall, which you will be liable to pay to your lender. These types of mortgages are suited to people who prepared to accept an element of risk within their mortgage.

If you would like more information please contact us.

Note: Sovereign Financial Planning Ltd provides advice on mortgages and associated insurance and are not authorised to give advice on Savings and Investment products.

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Interest Only – Non Investment

With some lenders it is possible to arrange a mortgage on a ‘pure’ interest only basis where you have alternative plans to repay the debt. It may be that you intend to repay the mortgage by making regular overpayments or you may expect to have alternative means to repay the debt at some time in the future such as the sale of a property or the maturity of an investment.

You may be expecting an inheritance or you may choose to sell your home and downsize to a cheaper property thereby freeing up equity in order to repay the outstanding mortgage. As with the investment backed mortgage these types of mortgage are suited to people who are prepared to accept an element of risk, as there is no guarantee that the debt will be repaid at the end of the mortgage term.

If you would like more information please contact us.

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