How do I repay the mortgage?
The type of mortgage you take out determines how you repay it. A mortgage has two parts: capital, which is the money you’re borrowing, and interest, the fee you are charged for doing so. There are three different ways you can repay your mortgage: repayment, interest-only or ‘part and part’ which is a combination of the two.
A repayment mortgage means that you pay back both the capital and the interest by making regular monthly repayments to the mortgage provider for the agreed term of the mortgage.
This means that, as long as you keep up the repayments, your mortgage will be repaid at the end of the term. It’s a very straightforward method and makes repayment mortgages the most popular type of mortgage.
An interest-only mortgage means that your monthly repayment covers only the interest due on the amount you borrowed. Although this means that your monthly repayment is a lot less than if you had a repayment mortgage, to pay off the mortgage you will still have to repay the capital borrowed.
When you take out an interest-only mortgage you will need to know exactly how you’re going to repay the capital sum and, generally, this means making a single, lump sum payment at the end of the mortgage term. The mortgage provider isn’t going to leave you paying this to chance so they’ll make sure you have a repayment strategy in place before agreeing to make the loan: invariably this will mean you having to make regular payments into a saving or investment plan. If, at the end of the mortgage term, your chosen saving strategy doesn’t provide enough money to repay the capital you’ll be expected to cover the shortfall and, in some cases, this may mean having to sell the property to do so.
Part-and-part (combined repayment and interest-only) mortgage
This is a combination of repayment and interest-only mortgages and you can usually agree the split between the two components when you take out the mortgage.
At the end of the mortgage term you’ll have paid all of the interest and most of the capital – but you’ll still owe some of the capital and, as with interest-only mortgages, you’ll need a lump sum to pay it off. As with interest-only mortgages, your mortgage provider will expect you to have a plan to do so.
Arrears and problems
The usual mortgage term of 25-35 years is a long time, more than enough time for your circumstances to change dramatically. If you do find yourself struggling with your mortgage repayments don’t, under any circumstance, be tempted to ignore the problem in the hope that it’ll go away. It won’t, it’ll probably get worse.
There are a number of things you can do to address the situation but ‘Number 1’ on the list is to tell your mortgage provider. They’ll applaud your honesty, will try to help and will be able to offer advice, guidance and practical assistance – after all, no one wants to see someone lose their home.
How can One Financial Solutions help you?
One Financial Solutions is here to help you no matter whether you’re a first-time buyer, thinking about ‘buy-to-let’ as an investment opportunity or wanting to know the pros and cons of equity release.
Buying a property is probably the greatest financial undertaking most of us will ever make; it’s a huge commitment and one that needs to be thoroughly considered, ideally with the help of an expert guide. As a truly independent firm of financial advisers we’ll make sure the mortgage we recommend to you is selected from the entire market and is the one that is best for you.
So, if you’re looking for a mortgage or just want advice on an associated subject, please call us on 020 3714 9565 or ask us to call you by sending an email to email@example.com.