Most people automatically apply for a repayment mortgage, as this ensures that they pay some of the interest and the capital which is owed each month. At the end of the term, the mortgage is completely paid off and the house belongs to the borrower. However, the monthly payments will be slightly more expensive than an interest only mortgage, which may be a problem for those on a restricted income.
Although interest only mortgages are much harder to find now, it is still possible to obtain one if you have sufficient equity in the property. You only pay the interest on the mortgage each month, which means that monthly payments are much lower. This is useful when interest rates are high, making it easier to manage your income.
The disadvantage of an interest only mortgage is that the capital is still outstanding at the end of the term. You have to either save elsewhere to ensure you have sufficient funds to repay the mortgage in full, or sell the property to pay off the amount outstanding. If a person knows that they will receive a large lump sum at the end of the term, perhaps a pension lump sum or an inheritance, they may be able to pay off the amount owing to fully own the property.
A repayment mortgage may cost a little more each month but you are guaranteed to have paid off the amount owing at the end of the term. If you are considering an interest only mortgage, consult a CeMAP qualified mortgage adviser to make sure it is the best option for you.
