Consumers these days can benefit from a choice of mortgage products, such as fixed rate mortgages, discount mortgages, the tracker mortgage, and more. There are two main categories under which all of these mortgages lie, and these categories are repayment mortgages and interest only mortgages. There are a number of differences between these two different types of mortgages, and it is important for anyone that is looking to take out a mortgage to consider the pros and cons of each type of mortgage before making any decision.

A mortgage is a loan that is taken out to purchase a property, and this makes it a secured loan. When you take out a mortgage you are given a mortgage term over which you will be repaying the loan, and at the end of that term, in one way or another, the balance of the loan plus all interest owed to the lender should be paid off. This happens in different ways depending on whether you have a repayment (capital and interest) mortgage or an interest only mortgage.

Interest only mortgages were once very popular in the 1980s and 1990s, but these days are classed by many lenders as higher risk mortgages. As a result of this some lenders have now stopped offering interest only mortgages. As with repayment mortgages, when you take out an interest only mortgage you will make repayments over a certain period of time, which is the term of the mortgage. However, as the name of the mortgage suggests your repayments will be paying only the interest on the loan, which means that at the end of the mortgage term you need to find some other means by which to pay off the actual loan balance.

This means having some sort of sideline investment to run alongside your mortgage such as an endowment, ISA, or other vehicle through which to try and raise the money to pay your principal loan balance. This method puts you at risk of not being able to raise the amount of cash required to pay off your principal loan balance at the end of the term. The main benefit with interest only mortgages is that the monthly repayments can be significantly lower than with repayment mortgages. However, you will not see your actual loan balance go down over the mortgage term because none of your repayments are being put towards your principal balance.

With a repayment mortgage the monthly repayments are higher. However, this is a more straightforward mortgage that can offer increased peace of mind. Your monthly repayments are split between the interest and the actual principal loan, hence this type of mortgage is also known as a capital and interest mortgage. This means that you will be able to see your mortgage balance coming down over the term of the loan, and by the end of the loan term, providing you have kept up with repayments, your mortgage will be clear and the property will be yours

Related Articles:

• End Of The Road For 125% Mortgages
• Mortgages – some frequently asked questions
• Fixed Rate or Variable Rate Mortgage
• Is it time to remortgage?

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