The Money Stop

If you are on the lookout for a mortgage to purchase a property in the UK you could find yourself in something of a minefield, with a wide range of mortgages to select from, each offering a range of benefits to suit different needs and circumstances. However, all of these mortgages come under the umbrellas of either repayment mortgages or interest only mortgages.

When applying for a mortgage you need to consider whether you want to opt for a repayment or an interest only mortgage, and there are some important differences to bear in mind with these. The most popular type of mortgage is the repayment mortgage, and this is where you make monthly repayment that cover part of the interest payment and part of the principle debt. With a repayment mortgage your loan decreases over time, and once you have made your last payment the property is yours, lock, stock, and barrel.

An interest only mortgage differs in that the repayments that you make will only cover the actual interest that you owe on the loan, and your principle debt will not be touched throughout the term of your mortgage. This means that at the end of your mortgage term you will still owe the amount of the original loan that you took out. This can be something of a daunting prospect, and consumers that opt for this type of mortgage need to also take out a separate investment in order to have the necessary funds to pay off their original mortgage loan at the end of the mortgage term.

The repayment mortgage (also known as capital and interest mortgage because the repayments go towards both the main loan and the interest) is the most popular type of mortgage, and many people opt for this because it is more straightforward and they do not have to worry about additional investments in order to clear the loan at the end of the mortgage term.

The repayments on an interest only mortgage tend to be lower than those on a repayment mortgage, because no repayment is being made on the principle loan, and this is why many people decide to go for this type of mortgage. It is important to weigh up the pros and cons of both of these mortgage types before making a decision, taking into account your ability to pay and bearing in mind that although an interest only mortgage might offer cheaper repayments you will also have to pay out on a separate investment alongside this mortgage.

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