Repayment Options
Repayment
mortgages |
Term | Advantages
| Disadvantages
Advantages Of Repayment Mortgages
Repayment mortgages are the lowest risk method of paying
back your mortgage, in as much that you can be sure that
if you make your repayments for the full duration of the
term, then your debt will definitely be cleared on schedule.
This is not necessarily the case with an interest-only mortgage,
which rely on the sometimes-volatile performance of a separate
investment product in order to repay the debt.
Repayment mortgages do not require you to understand any
complex financial products. You know that each month you
are paying out a set amount and that each month and year
you are reducing your debt. It's a simple matter of borrowing
money, being charged interest for the privilege and paying
it back over a set period of time. This is not the case
with an interest-only mortgage, which requires you to understand,
pay into and monitor the performance of a separate investment
product.
Some interest-only mortgages make use of endowment investment
products to repay the loan, which incorporate an investment
element and life insurance cover. Though this may appeal
to some people, plenty of others prefer the way that a repayment
mortgage keeps the mortgage debt separate from investment
or protection products. Many observers believe that it is
possible to achieve stronger investment performance and
more competitive policy premium prices by arranging such
products separately.
In terms of the total interest bill, repayment mortgages
are far more cost effective than interest-only mortgages.
The total interest charges over the life of the loan on
a repayment mortgage are much lower than with any other
way of paying it back. Since you are only charged interest
on the outstanding debt, the constantly reducing balance
leads to a significantly lower amount of interest being
paid over the term than with an interest-only mortgage,
where interest is charged on the full debt for the full
term.
Repayment mortgages can be incredibly flexible. As long
as the lender will allow you, it is possible to extend or
reduce the term when rates change to ensure your monthly
outgoings remain the same. You may be able to take payment
holidays, add to your borrowing, pay off lump sums, or even
switch to other mortgage products. This level of flexibility
is not always possible with interest only mortgages, particularly
where poor performance of the associated investment product
can act as a constraint on your freedom to alter monthly
payments.
