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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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