mortgage repayment types
Posted on 3rd September 2023 at 08:28
When it comes to repayment types, the one that is the most common with your own home is a repayment mortgage.
This means that in X years, you will have paid back every penny including the interest and now completely own your own home.
This is seen as the safest way to buy a property.
But what if your income is very variable? What if you get paid ‘OK’ through out the year but with the bulk of it in December?
What if sometimes, the going gets tough, but then picks up again quickly?
Well it may be worth considering an interest only mortgage.
What this is, is a lender loaning you the money for X years and then by the end, you pay it back.
In the meantime, you pay the interest due on this loan and nothing else.
Where is the flexibility? Well, if you are doing ok and have the cash to put into this mortgage, you can overpay each month to bring the capital down bit by bit, very much like a repayment mortgage, but if you suddenly have a rough month, you can opt to pay the minimum interest payment and not overpay.
This means you could save a bit of money to help you until you get back to good earnings again.
Depending on the lender, you may also be able to make big lump sums at that lucrative time too.
What are the risks though?
Well, if you do not pay back all of the capital by the end of the full term, the mortgage lender is going to ask for their money back.
Whatever is outstanding.
So what are the options? You can pay it back if you have the funds, ou can sell, downsize and pay them back with the sale of the house, maybe you have a pension payout on the way?
Or maybe you can remortgage and push it further down the line.
Always seek professional advice before going ahead with a mortgage, its worth every penny.
Remember, you could lose your home if you do not keep up with payments on your mortgage.
Austyn Johnson CeMAP
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