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About Different Mortgages
A mortgage is a sum of money borrowed from a bank or building society in order to purchase a property. The money is then paid back to the Lender over a fixed period of time together with the interest. There are two main types of mortgage in the UK, repayment or interest only. This article covers the basics of repayment mortgages and it's advantages and disadvantages. Repayment With a repayment mortgage you make a payment every month which repays both interest on the mortgage and a small amount of the capital. You will normally receive an annual statement which shows the amount of interest and capital paid. In the early years of a repayment mortgage, more interest is paid off than capital. Thus it can take several years to reduce capital significantly. Advantages of a Repayment Mortgage • You can be certain that at the end of the mortgage term your debt will be paid off. • The repayment mortgage may initially offer a lower interest rate. • You may be able to make overpayments and lump sum payments which reduce the amount of interest payable (dependant on the mortgage chosen). Disadvantages of a Repayment Mortgage • If you are planning to move again with a few years your capital will only have reduced by a small amount • If you have no life insurance cover and die before the loan is repaid, the mortgage will still have to be paid. If your dependants cannot afford the repayments the property may have to be sold.
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This intel was contributed by Lydia
Lydia
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May, 2012
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