There are many schemes offered by mortgage lenders from which prospective borrowers may choose. The borrower agrees to pay back the mortgage over an agreed term. The agreed term is typically between 20 to 30 years with the most common term being 25 years. Clients do however, have the option of paying lump sums or even paying off the balance in full at anytime should they chose to do so.

In addition, the borrower is allowed to sell the property or change the type of mortgage at anytime.  If the borrower sells the property before the end of term, the remaining balance can be paid off by the proceeds of the sale and any monies remaining becomes his profit.

There are two main types of mortgages: 

• INTEREST ONLY MORTGAGE
• CAPITAL AND INTEREST MORTGAGE

INTEREST ONLY MORTGAGE

With the interest only mortgage, the interest is paid to the lender throughout the whole term and capital is repaid at the end of the term.

The amount of capital borrowed remains the same throughout the term. How the client pays back the mortgage at the end of the agreed term is totally up to the individual client.

If the house purchase is for investment purposes i.e. if you have the intention of selling the house after either modernising it or after letting it out for several years, then it may make greater sense to keep the monthly payments low and have the mortgage on an interest only basis. Once the house is sold, the mortgage can be repaid from the proceeds of the sale and any monies remaining become your profit. This is a common practice in the UK for the buy to let property market.

CAPITAL AND INTEREST MORTGAGE

This type of mortgage is often referred to as the repayment mortgage through which varying amounts of both capital and interest are paid every month.

The monthly payments consist of interest due and a small proportion is eroded from the balance of the mortgage. In the early years of the mortgage, the proportion of the interest payment is greater every month a payment is made. Therefore, the amount of capital paid back in the early years is minimal. During the latter years of the mortgage, the client begins to notice a considerable reduction in the outstanding balance. If the client maintains regular monthly payments, there is a certainty that at the end of the agreed term the mortgage will be paid off.