When thinking about getting a mortgage it is good idea to gather all of the information you can to get yourself up to speed on what a mortgage is and the different kinds of fees you will be paying when you take out a mortgage. A mortgage is likely the biggest financial commitment you will make in your life so it is essential to know the facts.
There are two main types of mortgage that can be taken out.
- Repayment
- Interest-only
With an interest only mortgage you will only pay the interest on the loan. At the end of the term you will still be liable for the original amount borrowed. You will need an exit strategy in place for the end of the term whether this be pay off the balance from savings or selling the property.
With a repayment mortgage you will pay back mixture of interest and the actual loan itself. This means that at the end of the term you will have paid back the full loan and own the property outright.
Repayment mortgages will have a larger monthly payment due to the fact you are paying off the loan and not just the interest amount.
Advantages of interest only
An advantage of interest only mortgages is the monthly repayments are lower. If the property shoots up in value or you have work done that increases the value, you could actually profit on the house and remortgage down the line when you will have equity in the house and can get a better rate.
You will also get more flexibility to pay off the loan at your own pace through the full term without sticking to larger monthly payments each month.
Disadvantages of Interest only
If the property were to fall in value, you would be in negative equity and if you didn’t have an exit strategy it may be more difficult for you to pay off the loan amount.
If you are considering your options, it is a good idea to speak to an expert mortgage advisor that will be able to give you the best advice for your situation and circumstances.