First Stop Mortgages and Loans

 

Repaying a Mortgage

We will help you understand the different methods you can use, but in general terms there are two main methods you can consider.

  • Capital and Interest Repayment Mortgage - With this type of mortgage the monthly payment will include both the lender's interest and an additional amount which will reduce the balance of the loan. Payments will normally be calculated by the lender to make sure nothing is owed by the end of the agreed mortgage term. In the early years more interest is paid each month than capital to reduce the balance. In later years as the balance reduces, the borrower pays less interest and more capital each month.

  • Interest Only Mortgage - As the name suggests, each month the borrower pays the interest charged by the lender. They do not pay any capital and the loan outstanding does not reduce. Instead, the borrower will usually put in place a regular investment plan, pension, Personal Equity Plan etc to run the same term as the loan. This plan should be designed to generate sufficient funds to repay the loan at the end of the term. Endowment policies are probably the most popular and common investment plans but pensions and other savings vehicles can be used.. A borrower should check what guarantees apply to the investment plan and, where the final outcome cannot be guaranteed, ensure they regularly review its performance to make sure it will clear the loan on time.

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