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Mortgage Guide
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Types Of
Mortgage
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The part and part mortgage
This
is a relatively new type of mortgage that's designed to be
a halfway house between an Interest-only
mortgage and a repayment
mortgage (also known as capital and
interest).
The idea is that it combines the advantages of both types,
while minimising the disadvantages.
Basically, part of your mortgage is interest-only and the
rest is repayment it's up to you to decide what split you
want.
The monthly repayments are cheaper than for a comparable fully repayment mortgage.
This is because, while you're paying interest on everything you owe, you're repaying only part of the capital.
In the long run, though, this makes a part and part mortgage more expensive than a straight repayment loan, as more of your debt remains unpaid during the term and, therefore, collecting interest. • Compared to an interest-only mortgage
Because of the capital repayment element, the monthly payments are higher than for a comparable interest-only mortgage.
However, it is less expensive over the full mortgage term.
This is because you are paying off some capital as you go, reducing your interest bill and leaving a smaller debt to be settled at the end of the term. How this works in practice
Imagine you agreed to a £150,000 mortgage at 6 per cent interest
• Interest-only
On a fully interest-only basis, this would cost £750 a month giving a total of £225,000 over 25 years.
Add in the original £150,000 which would still need to be repaid
Total cost: £375,000 • Repayment
On a fully repayment basis, it would cost £966.45 a month, adding up to £289,935 over 25 years.
At the end of the 25-year term, you would be debt-free.
Total cost: £289,935 • Part and part
Dividing
the debt equally between interest-only and repayment, the
monthly cost would be £858, giving a 25-year total of £257,466.
But you would still owe £75,000.
Total cost: £332,466
So, going part and part on this basis would save you £42,534
on the straightforward interest-only deal, but be £42,531
more expensive than the fully repayment option.
To read more on this subject please see the list below or your mortgage guide or your home buying guide
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Read On
Interest
only mortgages
Interest
repayment arrangements
Read On / Mortgage Guide
Choosing
a Mortgage
Different Mortgage Types
Re
Mortgages
How to Find your Mortgage
Mortgages in Principle
Read On
Guide to Buying Home in the UK
Guide to UK Home and Mortgage Insurance
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