How do I repay the mortgage?

Getting the mortgage is only part of the process - you now have a debt that you need to make plans to repay, in addition to deciding how much and how soon (if at all) you intend to buy more of the equity in your property.

There are two methods to repay your mortgage. The most common is on a capital and interest basis, frequently referred to as repayment.

Here you are making regular reductions in the mortgage debt every month you pay your direct debit. The monthly payments are calculated so that if interest rates and the term of the mortgage remained unchanged your monthly payment would be the same throughout the term.

This means that in the early years of your mortgage, the monthly payment is made up largely of interest. As the years go by and your balance reduces, the element of the monthly payment which is capital increases - on a standard 25-year mortgage this usually occurs around year 14.

Your other option is to take an interest only mortgage. This appears much cheaper compared to a capital and interest mortgage and this is simply because there is no capital repayment element being made. This means that you could pay the mortgage company indefinitely (if they would allow it) but you would not be reducing your debt.

Here you must make your own arrangements so that at the end of the mortgage term, when the lender asks you to repay the debt, you have savings available to cover it.

With a capital and interest mortgage you are guaranteed to repay your debt (so long as you maintain your correct payments) by the end of the term of the loan. Also, because you are reducing your balance each time you make a full, scheduled payment you will pay significantly lower interest over the term of the loan. For these reasons most people choose capital and interest over interest only.

Next: What is the Buying Process?

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