Choices, choices, choices...
At Buckingham James we offer independent mortgage advice to clients from a variety of different backgrounds and ages.
Many experienced borrowers will be familiar with the main choices when it comes to repaying a mortgage but if you are first time borrower – then you might find the short guide below helpful.
These days the most popular method for repaying a mortgage is the ‘capital and interest’ repayment option. However, there is also an ‘interest only’ option. It can even sometimes be possible to set up your repayment plan using a combination of the two.
Here is a brief description of these two methods.
Repayment (capital and interest) Method
Under this method your monthly repayments consist of both interest and capital hence, over time, the amount of money you actually owe will decrease. In the early years your repayments will be mainly interest and therefore the capital outstanding will reduce slowly in the early years. This method ensures that the mortgage is repaid at the end of the term providing all payments are made on time and in full.
As the name suggests, with the interest only method you only repay the interest on the amount borrowed. At the end of the term the capital is still outstanding. Therefore you will usually need to take out some kind of investment plan to save up enough money to repay the mortgage at the end of the term.
Traditionally the preferred route for repaying the capital off from an interest only mortgage was a mortgage endowment policy (which included a set amount of life cover) – although more recently clients are favouring Individual Savings Accounts (ISAs) and/or pensions to build up a sufficient sum and taking advantage of the tax breaks offered by these products.
At Buckingham James we know there is no ‘one size fits all’ solution and we always work to a strict policy of providing the most suitable route to repaying a mortgage.
Get in touch with us today to discuss your individual mortgage requirements and options.