Mortgages

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A mortgage is a sum of money borrowed from a bank or building society in order to purchase a property. The money is then paid back to the Lender over a fixed period of time together with accrued interest. There are many different types of mortgages and there will be one out there that best suits your requirements.

There are essentially two different types of mortgage:

Repayment (capital and interest mortgage)
Interest only (ISA, pension or endowment mortgage)

Which Mortgage:

Repayment Mortgage
Your monthly repayments consist of repaying the capital amount borrowed together with accrued interest. On your mortgage statement, normally received annually, you will see that the outstanding balance decreases throughout the term.

Interest Only Mortgage
With this type of mortgage, each mortgage payment is only used to pay off interest. At the same time, the borrower takes out an alternative ‘repayment vehicle’ (method of paying off the mortgage) such as an ISA, pension plan or endowment policy. More information on endowments (which in the 1980’s and 1990’s were extremely popular), ISAs and Pension plans is set out below. The most important fact about an interest only mortgage is that the monthly repayments do not repay any of the outstanding capital balance. As a consequence it is important that the payments are maintained into the repayment vehicle; otherwise it will not be possible to pay off the mortgage at the end of the term.