Repayment Mortgages UK

It's said that buying a home is one of life's most stressful experiences, and faced with such a dizzying array of mortgage options it's easy to see why. Trying to get your head around what the market has to offer can feel like you're struggling with a new language, but the good news is that, if you take things one step at a time; you'll soon begin to make sense of it all.

Mortgages can be divided in to two types: repayment mortgages and interest only mortgages. With repayment mortgages the entire mortgage is paid back over an agreed period of time (this is referred to as the mortgage's term and is most commonly set at 25 years). When the mortgage's term has come to an end, providing all the repayments have been met, the property will be in the hands of the homeowner. With an interest only mortgage, repayments are made solely on the mortgage's interest. This means that once the mortgage reaches the end of its life, the homeowner must still repay the lender the entire value of the initial loan.

Deciding which mortgage is best for you depends on a variety of factors, which is why it's important to do your financial homework first. Repayment mortgages are regarded as the safest option, hence their appeal to the more cautious investor. They are certainly much easier to understand and you should have no trouble working out your monthly incomings and outgoings.

Interest only mortgages are deemed as being more risky because the borrower must take out an additional 'savings vehicle' (such as a personal pension plan or an endowment) to cover the outstanding loan when the mortgage closes. Because the performance of these investments depends on the stock market it's difficult to know exactly where you stand financially. If the stock market is buoyant then borrowers stand to benefit, which isn't the case with anyone who has taken out a repayment mortgage. However, if the economy is in decline then there's a very real chance that the investment won't meet the final mortgage settlement. Before you make any firm commitments it's a good idea to make an appointment with an independent financial advisor. Having made your mind up about which type of mortgage would be most advantageous, you can then turn your thoughts to deciding the best way to make your repayments. Follow the link for an overview of different mortgage interest rates.

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