Ways to pay back your mortgage
Explaining your options
There are two main ways you can pay back your mortgage: repayment (capital and interest) and interest-only. Find out which is best for you:
Repayment (capital and interest) mortgages
- Pays off your interest and your loan
- Straightforward and predictable
A repayment mortgage repays the interest on your loan and the original sum you borrowed. Over time, you start to reduce the sum you owe - make all your repayments and you'll own your home outright.
Interest-only mortgages
Repayments only cover the interest on your loan You still have to repay the sum you originally borrowed As the name suggests, an interest-only mortgage only repays the interest on your loan.
If you have an interest-only mortgage, you'll have to make separate plans to pay off the sum you borrowed. This is normally done through an investment such as an endowment or pension. If the investment doesn't produce the funds you'd hoped for, you'll still have to repay the mortgage at the end of the term.
A note about APR
APR stands for Annual Percentage Rate and is an interest rate which takes account of the full amount of interest on any money borrowed plus the timing of repayments and any other charges that you have to pay. It may not take into account any reduction in interest rate following the maturity of the initial product. The frequency of the interest payments, for example monthly or quarterly, affects the calculation.