Repayment Mortgages: Frequently Asked Questions

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Repayment Mortgages: Frequently Asked Questions

We've put together a list of the most commonly-asked questions about repayment mortgages to help you understand their pros and cons.

Question: How many years can I take out a repayment mortgage for?

Answer: While the standard term used to be 25 years, it is now possible to take out repayment mortgages for anything up to 52 years.

Question: Do you need a high income for a repayment mortgage?

Answer: No. As long as you can afford the repayments and meet your lender's standard borrowing rules, then it does not matter what your income is.

Question: Do you need a large deposit for a repayment mortgage?

Answer: No. In fact, repayment mortgages are often the only kind of mortgage available to people with no deposits – quite a few lenders offer 100% repayment mortgages, which require no deposit.

Question: What if I have a bad credit rating?

Answer: Repayment mortgages are ideal for people with bad credit ratings. Because there is less risk than with an interest-only mortgages, many of the mortgages available to people with bad credit ratings are repayment-only mortgages.

Question: When I get to the end of a repayment mortgage, will I still owe anything?

Answer: No. You will own the property outright as soon as you make your last payment. The only extra costs you may have will be your mortgage lender's standard terminal fees – fees paid to cover the administration costs of transferring the deeds of your home from your mortgage lender to you.

Question: I've been told that increases to the interest rate don't have as much effect on repayment mortgages as on interest-only mortgages?

Answer: That's right. If interest rates go up, your monthly payment will not go up by as much on a repayment mortgage as it would do on an interest-only mortgage. This is because only part of your monthly payment is interest – the rest is a payment towards the capital sum you borrowed, which is not affected by the interest rate.

With interest-only mortgages, your whole monthly payment is made up of interest, so an increase in the interest rate will have a greater effect on it.

Question: I understand why repayment mortgages are a good idea, but I am worried I will not be able to afford the monthly payments. If I start out with an interest-only mortgage, can I later switch to a repayment mortgage when I am earning more?

Answer: Yes. There are no real restrictions on switching between different types of mortgage. The only thing to remember is that if you want to switch from an interest-only mortgage to a repayment mortgage, you will either have to increase the term (length) of the mortgage or face an increase in your monthly payments. It is much better to start with a repayment mortgage if you can afford to.

To read more on this subject please see the list below or your mortgage guide or your home buying guide

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