Types Of Mortgage

  · Capital: the amount that you borrow

· Interest: the charge made by the lender on the amount you owe

With a repayment mortgage your monthly repayments cover both the capital and interest on the loan.

As the term continues, the amount outstanding on the loan reduces so the full amount of the loan is repaid at the end of the term, providing all payments have been made on time.

By extending the term of a repayment mortgage, you may be able to reduce the monthly repayment amount. However, extending the term will result in increased interest charges and is likely to cost more overall.

With an interest only mortgage, your payments to the lender cover only the interest on the loan (i.e. they do not repay any of the capital). The original amount borrowed does not reduce over time and the full amount of the loan still has to be repaid to the lender at the end of the term, so you will need to ensure you have that money ready.

So you can make this final payment, you can have an investment vehicle such as an endowment or pension so that you generate enough capital to repay the loan at the end of the term. 

However, there is no guarantee that your chosen investment vehicle will grow sufficiently to repay your loan (although you can usually top up your contributions to investments as you go along if this looks likely to be the case).

This is a combination of both capital repayment and interest only. Only part of the mortgage debt will be paid by your monthly payment and you would be expected to have an investment to cover the balance of the outstanding debt at the end of the mortgage term.