Mortgage Repayment

Once your mortgage application has been accepted in principle, you may have the option of deciding how you repay the loan: on a ‘repayment’ basis, or on an ‘interest only’ basis.

Free initial consultation

We invite you to a free introductory meeting to discuss your mortgage and protection needs. Designed to give you a feel for Park Hall, we can also assess your financial story.

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Repayment mortgage

With a repayment mortgage your monthly repayments cover both capital and interest on the loan.

As the term continues, the amount outstanding on the loan reduces so the full amount of the loan will have been repaid at the end of the term as long as you have made all your payments on time.

No other repayment vehicle is needed, and it avoids the risk of investing (e.g. in the stock market).

If you remortgage, you may be tempted to extend the end repayment date in order to lower your monthly payments. However, this means that the amount you repay overall increases over time.

We understand how buying a property can take some navigating. We help you through the process and will remind you in advance of any relevant upcoming mortgage deal renewal dates thereafter.

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Interest only mortgages

With an interest-only mortgage, your payments to the lender cover only the interest on the loan (i.e. they do not repay any of the capital). The total amount of your debt does not reduce over time and the full amount of the loan still has to be repaid to the lender at the end of the term, so you will need to ensure you have that money ready.

There are several ways to make this final payment. Some borrowers use inheritance, savings, the sale of other properties or assets, or proceeds from a business sale. Alternatively, you may choose to invest during the mortgage term with the aim of generating enough capital to repay the loan at the end of the term.

However, investing to repay an interest-only mortgage is a higher risk strategy, as it involves relying on investment growth to meet a fixed future debt. There is no guarantee that your chosen investment vehicle will grow sufficiently to repay your loan. If it doesn’t, you could be forced to sell your home to clear the remaining debt.

Some investment vehicles can have tax advantages and when you move or remortgage, your investment vehicle can usually be reallocated to the new mortgage.

You can usually top up your contributions to investments if your projections fall short, but this should be carefully reviewed with your adviser as part of your ongoing mortgage repayment strategy.