Capital Repayment and Interest Only Mortgages
There are 2 main types of mortgage available on the market.
Capital Repayment- Is the traditional type of loan mortgage. You would take out a loan amount and
your monthly repayments would constitute a portion of loan and a portion of interest repayment every month. At the end of
your mortgage loan term your mortgage would be fully repaid.
Only- Normally this type of lending is now only available on Buy to Let Mortgages or where the borrower can
place a hefty deposit and prove they have the capacity to repay the Interest Only Loan from another source.
This type of mortgage differs in the fact that you will only repay the interest that is
generated from the loan and none of the capital that is borrowed. The payments are therefore lower but you will not be reducing
the balance on the loan at all - You will need to have another form of repayment for the loan or switch to a repayment solution.
Part and Part- Again, mostly not available for residential lending. Is not
a common mortgage and is exactly what it says. It is part Capiutal Repayment and part Interest Only. The client may not be
able to budget for a full repayment mortgage but would still like to be able to reduce the loan taken out. With a Part and
Part (P+P) they are able to take a percentage of the loan on P+P and part of it on repayment. This means they can reduce one
portion of their loan while the other part stays reasonably low cost
Common types of mortgages rates can include:
Fixed rate -, when the interest rate is fixed for a period
of time. In the current market with unstable mortgage rates, most people seem to lean towards a stable rate of interest and
repayments to protect themselves against the uncertainty of interest rate rises. commonly available from 2, 3 or 5 year
terms. Usually, the shorter the term, the lower the rate available
- are linked to a rate not set by the lender, such as the Bank of England's base rate. This type of rate will
fluctuate with the raises or reductions in the Bank of England Base Rate. There is no guarantee that your rate and repayment
of the mortgage will remain stable from month to month
- Normally based against the lenders own Standard Variable Rate. The lender will usually give a discount from this
rate - often quoted as SVR minus ?.??% to give a lower rate payable. This rate is at the mercy of the mortgage lender. They
can adjust this rate at any time and not just when the Basnk of England adjusts their rate.