There are three man ways of setting your mortgage up,
although a fourth is described here as well.
Your monthly mortgage payment
will be part interest and part repayment of capital (loan). In
the years much of your payment will be interest as a portion
is loaded at the start, however, in later years your payment
will be made up more and more of capital (loan) and will
reduce at a faster rate. A repayment mortgage offers the
reassurance that once you make the final payment the debt is
totally cleared, assuming you have made all of the payments
You pay interest only for
the term of the mortgage, thus never reducing the debt.
Normally you would pay into some form of investment/savings
scheme to produce a sum at least equal to the original
mortgage amount to be able to pay off the mortgage at the end
of the term. This typically would be an ISA, Pension Plan or
Endowment. This mortgage offers potentially more flexibility
for people moving house regularly.
You may combine
an interest only mortgage with a repayment mortgage. You may
already have an investment contract in place for some of the
debt but wish to set up a repayment style for the
Investment backed mortgage
You may wish
just to pay the interest on your mortgage and rely on an
Inheritance or sale of other property or assets to pay off the
mortgage at some time in the future. A portfolio if
investments/savings could be determined in this instance.
What Repayment Term?
Normally this set
at outset at 25 years, however, differing terms dependant on
your budget can apply. The shorter the term, the higher the
repayments will be. It also advised, where ever possible to
ensure repayment of your mortgage before your normal or
desired retirement date