Interest only payments

Your monthly payments cover only the interest on your loan, so the capital amount you owe stays the same throughout the term of the mortgage. At the end of the mortgage term the capital sum will be repaid to your lender.

The repayment of the capital sum can be provided for from a maturing investment, for example;

• An Individual Savings Account (ISA)
• Personal Pension Plan
• Investment/Unit Trust

It could be from an inheritance or when you sell the property.

Capital and interest payments

Usually referred to as a repayment mortgage, each month your payment to the lender is made up of the interest on the outstanding loan and part repayment of the loan itself. This method allows you to gradually pay off the full amount of your mortgage over the repayment period. In the early years you are paying more interest but this gradually changes and by the end of the mortgage term you will be paying mostly capital.