Are You Puzzled Over Interest Only and Repayment Mortgages: Which is Better?

One of the big questions when it comes to mortgages is how to repay and which way is best

13:19 16 March 2013

If you’re searching for mortgages and are trying to choose the best one among the many different options, you’re not alone. Mortgage shopping is time consuming and can be overwhelming when considering all the slight variances of the mortgage plans.

 

There can be differences in term lengths, interest rates, subsequent interest rates, and payment plans. Interest only and repayment mortgages are the two main repayment options that we’ll investigate here:

 

Interest only mortgages:

 

• Initial payments are much lower than traditional repayment mortgages.

 

• Payments only go towards the interest on the mortgage.

 

• At the end of the payment period the principle is due.

 

• Certain investments can be used to pay off the principle.

 

• Property can be repossessed if payments are not made properly.

 

Repayment mortgages:

 

• Higher initial payments than the interest only mortgages.

 

• Payments pay a little of the interest as well as a little of the principle.

 

• At the end of the payment period the property is completely paid for.

 

• If payments are not kept up, the financial institution can repossess the property.

 

When it comes to seeking interest only and repayment mortgages, the main consideration should be whether or not you want to have to deal with paying the principle at the end of the loan period.

 

If you do not have sufficient investments to handle a very large payment at the end of the loan term, it would be in your best interest to choose the repayment mortgage and pay a little more each month.

 

Either of these mortgages (the interest only and repayment mortgages) is a valid way to purchase a home, so which one you choose depends on the level of risk and investment you’re comfortable with.