Mortgages & Protection

How can I repay the loan?

The lender will, at some stage, want the capital, that they have lent, repaid. They will also want interest on the outstanding capital balance, throughout the loan period.

The two main repayment methods are 'repayment' (also known as a capital and interest mortgage) and 'interest only'.

In a repayment mortgage, your monthly payments to the lender contain both interest and capital repayments. In the early years, the majority of the payments are interest, so the capital balance reduces relatively slowly. Provided that the payments to the lender are maintained, this method guarantees to clear the mortgage debt within the agreed term.

In an interest only mortgage, your monthly payments to the lender are confined to interest on the outstanding balance. One or more separate repayment vehicles are needed, to repay the loan, at the end of the term.

Historically, the commonest repayment vehicle was an endowment, which also included life cover and, in some cases, critical illness cover. However, any investment or savings plan, or combination of plans, could be used, including an ISA or a lump sum from a pension plan. The returns will depend on investment performance and plan charges. This means that, although the plans may provide more than the outstanding mortgage balance, there is a risk that, if investment performance is poor, the plans may not provide enough to clear the mortgage.

Alternatively, you could decide that you will sell the property itself, and use some of the proceeds to redeem the mortgage.

Your home may be repossessed if you do not keep up payments on your mortgage.

For mortgage advice you can choose how we are paid: a fee, usually 0.5% of the loan amount, or we can accept commission from the lender.

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