Different Types of Mortgage

Two common types of mortgage are Interest Only Mortgage and Repayment Mortgage.

An Interest only mortgage has become popular in recent years especially for first buyers and buy to let investors. They are cheaper than a Repayment mortgage. They are usually for a 25 year period. A big disadvantage of this type of mortgage is that you must repay the capital in full at the term. You will need a separate savings plan for this.

Monthly repayments are significantly lower than a repayment mortgage. This might give you some opportunity to invest money in other ways and potentially get a better return on your investments. This type of mortgage might be the only one that first time buyers can afford. It is a little daunting to think that at the end of the mortgage term you will still owe the same amount that you originally borrowed. Inflation will reduce this in real terms. So it is essential that you have some form of regular investment or savings plan running alongside this kind of mortgage.

An other popular type of mortgage is the Repayment Mortgage. With this type of mortgage you are making interest payment and capital repayments at the same time. In the early term of your mortgage most payment will be on the interest of the debt. Capital repayments will make up a very small part. Over time the ratio between interest and capital repayments increases, until eventually most of the payment will be paying off the capital debt.. This is considered to be the least risky kind of mortgage and easiest to understand. But if payments are not kept up the lender can repossess the property.

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