Types of UK Mortgages

You may be wasting your money with the wrong type of mortgage. Knowledge is power.

There are essentially two different types of mortgage:

Repayment only, (capital and interest mortgage)

Interest only, (ISA, pension or endowment mortgage)

Repayment only

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 amount borrowed decreases throughout the term.

Advantages

At the end of the term, you are safe in the knowledge that the total amount of the debt has been repaid.

Overpayments and lump sum payments into your mortgage account can be made reducing both the interest and capital amounts repayable.

Life assurance cover is not always necessary in taking out this type of mortgage.

Disadvantages

There may be financial penalties for making lump sum/overpayments into your mortgage account.

In the early years of a repayment mortgage the majority of the monthly repayment is interest rather than capital. For borrowers moving house regularly, this can result in little of the capital being paid off.

If you have no life assurance cover in place and die before the loan is repaid, the mortgage will still need to be repaid. This may result in the property having to be sold to repay the debt owed.

Interest only

With this type of mortgage, only the interest is paid off with each mortgage payment. The borrower also takes out at the same time, an alternative