What is the difference between interest only and repayment?
Mortgage lenders are companies and therefore don’t lend their money for no reward, as such interest is charged on the borrowings. Therefore there are two elements to a mortgage, the capital (the actual amount borrowed to purchase the property) and the mortgage interest (the amount the lender will charge for borrowing the capital). This then means there are two types of mortgages you can have; an interest only mortgage, whereby you pay the interest on the mortgage for the mortgage term but at the end of the mortgage term you still owe the capital. Or alternatively, you can have a repayment mortgage. A repayment mortgage equates to a higher monthly payment but it ensures at the end of the mortgage term you have fully repaid both the interest and the capital borrowed, and therefore owe no money to the mortgage lender.
