Repayment Options
Other Types Of Mortgage
There are three other types of mortgage that can occasionally
be found in the UK:
Low start mortgages
This is like a repayment mortgage, but with a difference.
In the introductory period, only interest is paid back to
the lender and not any of the capital outstanding. After
this period, the repayments start in earnest. The total
amount of interest and repayments over the life of the year
are higher than with a normal repayment mortgage, but this
sacrifice can be worth it if you need to severely restrict
your outgoings during the low start period.
Deferred interest mortgages
Interest is not paid during the discount period. When the
discount period is over, the accumulated interest is added
to the original loan. Some lenders add this interest to
the total of your loan to give a new loan figure and new
interest payments. Others calculate your interest payments
on the original loan as normal and then spread the repayment
of the deferred interest over a set period of time. The
latter method is better for you, as adding the deferred
interest to the loan means you end up paying interest on
the deferred interest!
Equity linked mortgages
Similar to the method used by housing associations except
it is the lender who takes a stake directly and not the
housing association. The lender takes ownership of a stake
in the equity of the property. This means that they lend
you less than the full amount that is required to buy the
home. Interest is only charged on the amount that they lend
you and not on the full value of the property. When you
sell the property, the lender receives payment in proportion
to the amount of equity that they own, and therefore benefits
from any increase in the price of the property.
