As we are sure you know, there are two ways to repay your mortgage – capital repayment or interest – only.
With a capital repayment mortgage you pay off both the interest and the capital loan over the life of the mortgage. In the early years you pay off more interest than capital but later on you make bigger bites into the debt so your mortgage balance reduces quickly. As long as you keep up repayments, your mortgage will be repaid.
An interest-only mortgage pays only the interest to the lender and the borrower has other plans for paying off the capital. It is very important that these plans are realistic.
Most lenders now offer mortgages on a so-called ‘part and part’ basis, so you can have some of your mortgage on a repayment basis and some on an interest-only basis. This is particularly useful for borrowers anticipating a shortfall on the value of their endowment policy when it matures.
However you choose to repay your mortgage, you should also consider taking appropriate insurance to protect you and your family if you become sick and are unable to work.