There are two main types of mortgages: repayment mortgages and interest only mortgages.
With a repayment mortgage, you pay back a certain amount each month, which goes towards reducing the amount you originally borrowed plus the interest on the loan. This way you slowly eat away at your mortgage.
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The only downside with repayment mortgages is that it can take a while before you see any major reduction in your loan, as your monthly payments in the first few years will be mainly interest.
Interest only mortgages
With an interest-only mortgage, your monthly payment only covers the interest charges on your mortgage. As you are only paying back interest, the monthly payments are lower than an equivalent repayment mortgage. However, you’re not actually reducing the loan itself. Also, the total cost of an interest-only mortgage can be more expensive, as you must also pay back the original amount you borrowed once the mortgage matures.
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Before choosing this option, it’s best to have a plan as to how you’ll repay the mortgage at the end of the term and how you will be able to afford it.
The main option is to save regularly through a savings account or an investment plan so that over time you have a lump sum that can be used to pay off the loan. Investments are generally considered to be better for long-term returns than savings account. Bear in mind, however, that there is no guarantee your cash will grow and you could even lose the original amount you invested.
Whatever plan you choose, remember to review it regularly to make sure that it’s on track to pay it back.
Note; if you already have an interest-only mortgage, you could convert it to a repayment mortgage after a certain number of years.