The differences between repayment mortgages and interest-only mortgages

August 24, 2014 by Brendan O'Neill

Mortgage Advisors

Most people take out repayment mortgages, but interest-only deals are also available.

An interest-only mortgage involves paying off just the interest on your loan, which means that, when the deal comes to an end, you will not have paid off any of the capital that you borrowed. Those who opt for an interest-only deal need to make other provisions for paying back the capital, which may mean putting money into an investment like an ISA where it can grow.

The drawback with this kind of arrangement is that your investment might not grow enough in the time available to pay off your mortgage at the end of its term. You also pay higher interest than with a standard mortgage, because interest is paid on the whole amount of the loan throughout the duration of the deal. Interest-only mortgages can be useful for buy-to-let deals, because the rent coming in covers interest payments and the property is usually sold eventually, paying off the capital.

Repayment mortgages are much more common and they involve paying off capital as well as interest throughout the life of the loan. This ensures that your mortgage has been paid in full by the end of the term.

If you are unsure about what mortgage is best, it makes sense to talk to an advisor with the professional experience to help you decide. A qualified individual will have undergone CeMAP training. Manchester, Liverpool, Leeds and cities throughout Britain currently offer CeMAP training courses, making it likely you’ll find a suitable advisor nearby.