What is an interest only mortgage?

An interest only mortgage is a type of mortgage whereby your monthly payment only covers interest on the amount you have borrowed. This type of mortgage doesn’t repay any capital, so the amount you will owe at the end of the mortgage term will be at least the amount of the mortgage you took out originally. (Quite often lenders will add their fees to the mortgage balance, so you can end up owing a little more than the original mortgage amount.)

Lenders often require you to have a suitable repayment method/facility running alongside such a mortgage, such as an Investment or Endowment policy. Some lenders will also allow “sale of mortgage” property as a valid means of mortgage repayment.

What is a repayment mortgage?

A repayment mortgage is a type of borrowing whereby your monthly payment will encompass the mortgage interest and a portion of the mortgage capital repayment.

The monthly payment on this type of mortgage will be higher than on an interest only mortgage, but your mortgage balance will decrease with each monthly mortgage payment.

What does LTV mean?

LTV is an abbreviation for Loan To Value, which is the % of your property value which you wish to mortgage.

For example, if you wised to borrow £200,000 and your house was valued at £250,000, your LTV would be 80%.

Generally speaking, the lower your LTV, the lower the interest rate offered by a lender will be.

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