Should I choose a 'repayment' or an 'interest only' mortgage?

Deciding whether to take out a repayment or an interest only mortgage is not an easy decision and you would benefit from professional and independent advice. To assist you in developing a good understanding of mortgages we discuss below the most significant points of each type of mortgage. We hope that this will help you make a more informed choice.

Repayment mortgage
You repay off the capital borrowed and the interest charged in monthly payments over the term of the mortgage - this is also called ‘Capital & Interest’. The mortgage lender writes to you each year with an Annual Statement which shows how much you have paid and what the outstanding balance is. Most people opt for this type of mortgage.

Interest only
Here you only pay the interest charged on the mortgage and you are required to repay the full amount you borrowed at the end of the mortgage’s term. You then take out a separate investment such as an ISA into which you save, in order to build up the capital repayment due at the end of the mortgage. This is generally seen as a more risky option because you are taking out a separate investment product to repay the capital borrowed. If your investments under-perform you could be faced with a shortfall at the end of the term and find that you do not have enough to pay off all the capital.