Introduction
The second major decision that everybody who takes out a mortgage must face revolves
around the method by which the loan is to be paid back.
Picking the right repayment vehicle is incredibly important and as ever, there are
numerous choices and decisions to be made that should take into account your personal
circumstances, needs and attitude to risk.
The first decision is whether you want a repayment mortgage or an interest-only
mortgage.
If you choose a repayment mortgage, then part of your monthly repayment will go
towards servicing the interest on the loan, with the remainder used to reduce the
outstanding debt.
If you go for an interest-only loan, your monthly repayments will be solely made
up of interest on the sum of money loaned to you, while your mortgage debt will
stay at the same level for the entire term.
This form of mortgage requires you to select some form of investment product to
accompany your mortgage and enable you to repay the sum borrowed at the end of the
mortgage term. Mortgage lenders will give you anything up to four choices:
- Endowment mortgage
- ISA mortgage
- Pension mortgage
- Standing mortgage
There is no universally 'best' way to pay back your mortgage debt, other than by
making sure that you keep up your monthly payments and avoid any risk of losing
your home. You should think carefully about the options open to you, and consider
how your circumstances or needs may change over time before making your decision.