Repayment methods

1. Repayment Mortgage: Guarantees the mortgage is paid off provided every payment has been made.

2. Interest Only: Using an investment vehicle or sale of property to repay the mortgage.

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Repayment mortgages - Each monthly payment pays off a little of the underlying debt, as well as interest on the loan. At the end of the term the mortgage is cleared.

This is widely considered to be the most easy to understand and least risky mortgage type. 

Interest only mortgages - With this type of mortgage, you pay-off the interest only on the loan and not the capital. At the end of the mortgage term you are expected to repay all the capital.

There are many acceptable vehicles.  The main being; ISAs, Endowments, Shares, Unit Trusts, OEICs, Bonds, Sale of property under certain circumstances.

If the investment performs badly, you could face a shortfall on your mortgage at the end of the repayment period. 

Types of mortgage rates

Fixed rates - The interest rate is fixed for the period agreed - often two to five years. These are ideal for budgeting or if you think rates might increase. You do not benefit if rates fall, and in the majority of cases will face penalties if you repay the mortgage before the end of the fixed rate period.

Tracker rates – The interest rate follows a disclosed base rate.  In the majority of cases this is the Bank of England base rate. 

Variable rates – Dictated by each individual lender. They tend to follow the bank of England base rate, but not always.

Discounted rates - Under this type of mortgage the borrower is offered a discount off the lender's variable rate. The rate paid will fluctuate in line with changes in the variable rate. The discount applies over a set term.

Capped rates - These are fixed, but if rates fall you pay the lower rate. These are now very rare products.