Capital and interest
Each month you repay some of the capital you have
borrowed along with the interest due on the amount of
the loan outstanding at that time. By the end of the
mortgage term, provided you have made the required payments,
you are guaranteed to have repaid your mortgage.
Interest only
Each month you only pay the interest on your mortgage.
To repay the capital you would normally take out a long
term investment plan such as an endowment policy or
an ISA.
Part repayment / part interest only
It is possible to have a mixture of the above two
repayment methods. Part of the loan is treated as interest
only and part as capital and interest. This style of
loan is often used by someone who has an interest only
mortgage and when increasing their mortgage wants to
take the interest on a capital and interest basis. |
