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TYPES OF MORTGAGE

There are essentially two types of mortgage:

  • Repayment, (capital and interest mortgage)
  • Interest only, (ISA, pension or endowment mortgage)
Repayment.
Your monthly repayments consist of repaying the capital amount borrowed together with accrued interest. On your mortgage statement, normally received annually, you will see that the amount borrowed decreases throughout the term.

Interest only.
With this type of mortgage, only the interest is paid off with each mortgage payment. The borrower also takes out at the same time, an alternative ‘repayment vehicle’ (method of paying off the mortgage) such as an ISA, pension plan or endowment policy.

The most important difference about an interest only mortgage from repayment type is that the monthly repayments do not repay any of the outstanding capital balance. As a consequence it is important that the payments are maintained into the repayment vehicle otherwise it will not be possible to pay off the mortgage at the end of the term.

Repayment Mortgage
Endowment Mortgage
Interest Only Mortgages


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