Types of mortgage
Features and benefits of mortgages vary greatly, but no matter which mortgage you choose you will have to repay the amount borrowed plus interest. There are two ways in which you can do this:
Repayment mortgages
- Monthly payments used to repay the amount borrowed and the interest
- Monthly payments are typically higher
- At the end of the term, the loan is guaranteed to have been paid in full.
Interest only mortgages
- Monthly payments used to repay the interest only
- At the end of the term, the capital is still outstanding and must be paid
- Usually, money is deposited into a long term savings plan for the length of the term ensuring money is available to repay the capital
- The buyer is liable for the shortfall.
Over the term, there probably won't be much difference in the total cost of the mortgage. However, it's worth remembering that only repayment mortgages guarantee that your monthly payments will cover the entire loan.
Most mortgages are paid back over a 25 year term. However, if you can afford higher monthly payments, it's worth reducing the term which means you'll pay less to the lender in interest. It's also possible to have a longer term which will lower your monthly payments but you'll pay back more in interest.
Bridging Loans
If you are buying and selling a property at the same time, you may need to take out a bridging loan to ensure that you have the funds to continue with the purchase. This means that the bank will lend you the money for your new home before your current home has sold.
However, it can be an expensive solution. Speak to your mortgage adviser to get more information.
