Ambergate Independent Financial Services

There are two ways you can repay your mortgage. These are capital and interest repayment (where the mortgage is often referred to as a repayment mortgage) and interest payment (where the mortgage is often referred to as an interest only mortgage).

With a repayment mortgage, your monthly payments cover the interest charged and also include an element of capital repayment. You will therefore see your mortgage debt decreasing over a period of time. It should be noted that in the early years, most of each payment is used to cover the interest charged. As the mortgage debt decreases, a higher proportion of each monthly payment is used towards capital reduction. The lender may insist that life cover be in place to cover the mortgage debt.

With an interest only mortgage, your monthly payments only cover the interest charged and therefore the mortgage debt will remain at a constant level. In most cases, the lender will insist that you have an investment plan that will pay out a lump sum at the end of the mortgage term to repay the mortgage debt. In addition, it is usual for the lender to insist that life cover be in place to cover the mortgage amount. The plans most commonly used for this purpose are a low cost endowment plan, a personal pension plan or a unit trust type plan. Endowment plans have life cover built into them, whereas pension plans and unit trust type plans do not. In these cases, separate life cover would be necessary.

Your home is at risk if you fail to ensure that your mortgage loan is repaid by the end of its term. It is your responsibility to ensure that your mortgage is repaid on time.

If you have an interest only mortgage, it is also your responsibility to ensure that you have an investment plan in place to repay the mortgage debt.