Mortgages
Build on your mortgage knowledge and know your options
As a mortgage is likely to be the single most expensive and lengthy financial commitment you'll ever make, it's important to understand your options. And while there are lots of different lenders, there are only a handful of different mortgages. The main decision you will need to make is whether you want a repayment mortgage, interest-only, or a combination of both.
Interest-only, repayment or both?
An interest-only mortgage will give you lower monthly payments, but you'll only be paying the interest on the amount borrowed. This means the amount you owe will stay the same. If you choose this option, it's important to have a saving or investment plan to build up the money needed to repay the capital borrowed by the end of the mortgage term.
A repayment mortgage means that every month, your payments go towards paying the interest, plus reducing the original amount borrowed. The benefit of this is that you see the debt shrinking, but in the early years you will be paying mainly interest, so if you're planning to sell in the short to medium term, you may not have reduced the amount borrowed by much. Monthly payments will be higher on a repayment mortgage than interest-only.
An interest-only and repayment combination mortgage gives you the benefit of both - lower monthly payments of the interest-only product, as well as the ability to make over-payments and reduce the amount owed.
A number of mortgages offer you the option to reduce the capital through over-payments, although there may be a limit as to the amount you can overpay. If this is a feature you would like, be sure to ask your bank or financial adviser about this.