Mortgages - The Basics
Mortgages are one of the largest single transactions in most people’s lives. Buying a property can be a stressful and time consuming experience, although nowadays the financing of a mortgage is a case of finding and selecting the most suitable mortgage, rather than simply accepting a lender’s offer. Banks, building societies, and smaller niche lenders compete for your business, all offering a variety of interest rate deals, associated fees and other enhancements to attract borrowers.
There are main methods of repaying a mortgage, capital and repayment and interest only. It is also sometimes possible to set this up using a combination of the two. A description of these methods is provided below.
Repayment (capital and interest) Method
Under the repayment method your monthly repayments consist of both interest and capital hence, over time, the amount of money you actually owe will decrease. In the early years your repayments will be mainly interest and therefore the capital outstanding will reduce slowly in the early years.
This method ensures that the mortgage is repaid at the end of the term providing all payments are made on time and in full.
As the name suggests, with the interest only method you only repay the interest on the amount borrowed. At the end of the term the capital is still outstanding. This method of mortgage repayment is rarely used in recent times. The number of lenders and allowable instances of using interest only are very small.
Talk to us for more information on when this method could be used.