At its most basic level, a mortgage is split into two elements – the loan (the money you borrow) and the interest (the charge made by the lender until the loan is all paid back). One of the main decisions you will make via Fairview Financial will be how you pay back the loan you borrow, the term of the mortgage and how you pay the interest on it. You can 1.) pay interest + the loan each month (a repayment mortgage) or 2.) just pay the interest each month and pay all the loan off at the end of the mortgage term (an interest only mortgage).
A repayment mortgage is the most widely available and provided you maintain the required payments, you also have the certainty that your mortgage will be repaid at the end of the term. Meanwhile, if you only pay the interest, you may find yourself stuck later on with a mortgage and no way of paying it off. Here is a breakdown of your two main options:
With a capital repayment mortgage, your monthly payments pay off the interest due each month plus a little of the loan you owe. With this type of mortgage, you have the benefit of seeing your outstanding mortgage balance start to reduce over time. Once the mortgage comes to an end, you’ll have paid off everything you owe in full and have nothing left to pay.
With an interest only mortgage, your monthly payments only pay the interest on the amount you’ve borrowed; you do not actually pay off the loan balance. An interest only mortgage is higher risk than a repayment mortgage and you will need to source an acceptable investment or savings plan to repay the mortgage. Interest only mortgages are very rare these days as lenders see them as far riskier.