Mortgage Guide
Types Of
Mortgage
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 pros and cons
• Compared to a
repayment mortgage
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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Read On / Mortgage Basics
What is a mortgage? A basic summary of the rules The choices you need to makeHow much can you borrow?
How do you prove your income?
How long are mortgages usually for?
What will happen to interest rates?
