This market place is changing dramatically, up until the start of 2010, you could have an Interest Only mortgage, but you had to satisfy the lender that you had a means to repay the mortgage at a later date, either by repaying the mortgage with an ISA, Endowment or another investment vehicle.
Most lenders in today’s market place are insisting that if you are taking a mortgage out and the loan to value is above 75%, you must have the mortgage on a capital and repayment basis, over the last few days one lender has actually said they will only lend on new mortgages on this basis
What are the advantages of having a capital and repayment mortgage?
Firstly each and every year your mortgage balance will reduce, during the early years it will not reduce as much as you are repaying back the interest as well as the capital, in the latter years you will be paying back more of your capital and less of the interest.
You mortgage is guaranteed to be repaid to the lender over the term that is selected, so for instance if you take a mortgage out for 20 years this will be repaid in full over this period.
What are the disadvantages?
There is only one downside, this will mean that your monthly payment will be much higher than an interest only mortgage as you are paying off the capital as well.
What are the advantages of an Interest Only Mortgage?
The obvious one is that your payment will be significantly lower than that of a capital and repayment mortgage.
What are the disadvantages of an interest only mortgage?
You will always owe the lender the full amount of the mortgage at the end of the term, for instance, if you take out a loan with a mortgage provider for 20 years for £100,000 at the end of the term you will still owe the lender the £100,000.
So if you are thinking that you can get a mortgage on an interest only basis, you should seek advice from a whole of market mortgage broker or an IFA.