The different types of mortgage repayments available to property purchasers are: tracker, variable rate, fixed rate,etc,.There are however some additional options like interest-only deal type and repayment mortgage deals.www.theautoinsuranceworld.co.cc
What does it entail?
An interest-only mortgage deal, entails that the borrower pays off the interest on the money borrowed, excluding the capital, for the duration of the term. But in a repayment mortgage deal, the borrower will be paying off some of the capital each month, as well as the interest accrued on the total amount.
Most people who take on a mortgage always choose repayment mortgage deals. These are the simplest types of mortgage deals and the risks are minimal.
With a repayment mortgage, your monthly payments will be made up of both a capital repayment and an interest repayment.
Capital repayments:
The 'capital' which is the money you borrowed in the first place, drops as payment is made each month and this gives you the opportunity to make payments within what you can afford. If no capital repayments are made, the amount owed will remain the same throughout the length of the mortgage deal.
Interest payments:
The interest is the money which has accrued on the capital you have borrowed. Interest payments may vary according to base rate fluctuations and the amount you owe over time. The larger the total mortgage, the more interest will be payable on the amount each month, so with repayment mortgage deals the interest will reduce over time as the capital owed reduces.
In a fixed rate mortgage, the interest owed monthly will not vary with the base rate, but remains the same for a fixed period or time. But in a variable rate or tracker mortgage, the interest owed each month may change according to base rate variations.
Which option is more suitable?
Repayment mortgages are the most popular because they are considered to be less risky and simpler to understand. Therefore, they are suitable for most people looking for mortgage deals. It is reassuring to know that each month the total owed is going down, and there is the added knowledge that interest repayments will drop in accordance with this. This type of mortgage deal is perfect for first time buyers who want a straightforward way to pay off their mortgage with ease.
Interest-only mortgages are often taken by investors who buy-to-let as they can claim back tax on mortgage interest. In most cases, they rely on the potential increase in the property market to make capital repayments at a later date.
Making your choice
Whether you are choosing the interest-only or repayment mortgage deals, it is advisable to consider your current and possible future circumstances, as well as the effect base rate changes will have on your repayments, and then make the necessary calculations so as to make an informed decision.
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