Repayment Mortgages

The Basics

This is widely accepted as the most straightforward of the mortgage options. A single payment is made to your lender each month covering both the interest charged on the loan as well as the repayment of the outstanding capital. The mortgage like most others is portable should you move house, and providing you maintain the payments for the entire term of the mortgage you are guaranteed to repay the loan at the end of your selected period of borrowing.

Advantages

The only option with a 100% guarantee that the loan will be repaid in full at the end of the term.

Disadvantages

In the first few years of the loan the largest proportion of your regular monthly payment goes to pay off interest – the balance outstanding is hardly reduced at all. Separate life cover will be needed to repay the mortgage if you die especially if you have any dependants. Although directly related to interest rates it can be slightly more expensive than the interest only options, even allowing for the investment vehicle payments.

Suitability

The repayment mortgage option is suitable in a number of circumstances the most common being those identified below:

• You do not like to expose yourself to too many financial risks



• The period of borrowing is for a short period (say less than 12 years)



• You are nearing retirement and want the security of guaranteeing the repayment of your mortgage