Understanding the Repayment Options for First-Time Buyer Mortgages.
Updated: Jun 27, 2023
If you're a first-time buyer, navigating the world of mortgages can be a daunting task. One of the key aspects of choosing a mortgage is understanding the repayment options available to you. In this blog, we'll explore the different types of repayment options for first-time buyer mortgages, and how to decide which one is right for you.
Repayment Mortgage: A repayment mortgage, also known as a capital and interest mortgage, is a type of mortgage where you pay back both the interest and the capital each month. This means that by the end of the mortgage term, you'll have paid off the entire loan and will own your home outright. This is the most common type of mortgage and is often preferred by first-time buyers because it guarantees that you'll own your home outright at the end of the term.
Interest-Only Mortgage: An interest-only mortgage is a type of mortgage where you only pay back the interest each month and not the capital. This means that your monthly payments will be lower, but you'll need to have a plan in place to pay back the capital at the end of the mortgage term. This could be through an investment or savings plan, or by downsizing your home at the end of the term. Interest-only mortgages are less common than repayment mortgages and are generally considered to be riskier.
Let's find the right mortgage for you!
Part and Part Mortgage: A part and part mortgage is a combination of a repayment mortgage and an interest-only mortgage. With this type of mortgage, you pay back part of the loan each month (the capital) and the interest on the remaining balance. This means that your monthly payments will be lower than a repayment mortgage, but you'll still be paying back the capital each month.
Offset Mortgage: An offset mortgage is a type of mortgage where your savings are offset against your mortgage debt. This means that you'll only pay interest on the difference between your mortgage balance and your savings balance. For example, if you have a mortgage of £200,000 and savings of £50,000, you'll only pay interest on £150,000. Offset mortgages can be a good option for first-time buyers who have savings, as they can help to reduce the overall amount of interest you pay.
So, which repayment option is right for you? The answer will depend on your personal circumstances, including your income, savings, and long-term plans. In general, most first-time buyers opt for a repayment mortgage as it provides a clear and certain path to owning your home outright. However, if you have a reliable plan in place to pay back the capital at the end of the term, an interest-only mortgage or a part and-part mortgage may be suitable for you. It's important to speak to a mortgage advisor who can help you to understand your options and choose the right mortgage for your needs.
Let's find the right mortgage for you!