Which Kind of Mortgage Loan Repayment Method Should I Pick?

Which Kind of Mortgage Loan Repayment Method Should I Pick?

Repayment Mortgage

That is the uncomplicated, low risk mortgage repayment method that involves making a single payment to the loan provider each month, part of which pays interest on the debt with the remainder going towards decreasing the amount owed.

Which Kind of Mortgage Loan Repayment Method Should I Pick?

An advantage of this sort of repayment is that because each repayment contains part-interest and part-capital, you are gradually reducing the principal of the loan. The lower the principal, the less interest you pay within the life of the loan.

A disadvantage of repayment mortgages or remortgages is that, unlike interest-only mortgages, there’s no all-in-one cover for life assurance or payment protection, for example. You’ll need to set up and pay these independently if you would like them so you may find an interest-only mortgage more suitable if this might be an issue for you.

Interest-only Mortgage

Interest is paid on the full amount of the loan for the whole term of the mortgage. This sort of mortgage enables you to pay the lowest possible monthly expense to the lender because no capital is included in the monthly repayment. As the repayments to the lender are smaller, you will need to invest in some other product so that you can make sure that you save sufficient money to repay the loan at the end of the term.

The three most common forms of investment utilized to accompany an interest-only mortgage are Endowments, ISAs and Pensions. This type of remortgage is slightly riskier than a repayment remortgage because you are basing your ability to pay off the capital of your mortgage at the end of the loan term, in part on the vagaries of the stock market. It’s probably advisable to get some independent financial advice if you’re considering this option.

By  Adam  Gardner

If you liked please share this post
Comments are closed.