The two types of mortgages are repayment and interest only. You could also have a mixture of the two. There are obviously benefits to each option, pros and cons depending on your situation.
Repayment Mortgage
A repayment mortgage will see monthly payments go towards reducing the amount owed on the principal sum as well as paying a portion of the interest accrued for taking the mortgage. This type of mortgage will have higher mortgage repayments but will allow you to pay off your mortgage quicker.
The Plus Points
You can see your loan getting smaller; you are reducing your debt level as quickly as possible.
The Negative Points
In the first few years of the loan, the majority of the repayments will be mainly interest. Therefore the loan won’t be reduced much at the beginning.
The Interest-only option
An interest only mortgage as the name suggests will pay only interest on the mortgage therefore you aren’t repaying any of the loan. If you go with this option you should have a plan in place to make the repayments of the loan in the future, for example from a savings account or an investment.
The Plus Points
As you are paying off interest on the loan and not the loan itself, your monthly payments will be lower.
The Negative Points
This option means you need to be careful with your finances and make sure the repayment option you choose is viable and will repay the loan in the future; reviewing regularly to ensure it is on track to repay the loan. If the loan isn’t enough at the end of the term, you could lose your home. If you do find you aren’t going to have enough to repay, you can ask your lender to switch part or all of your mortgage to a repayment mortgage. You could overpay your mortgage which will reduce the overall interest over the term of the mortgage. You could also start a new savings investment or use cash ISA savings to pay off your mortgage. Reviewing your savings after each bank of England base rate change will ensure you are always receiving the best interest rate and obviously investing wisely in longer term fixed rate investments can give you better return rates.
Whether you want a mortgage Aberdeen or mortgage for a home in York following the above advice will give you a great start with your first property.
