Most of the mortgages taken out by people now are repayment mortgages, as opposed to the interest-only type. Interest-only mortgages – supported by an investment plan which pays out a lump sum to clear the mortgage at the end of the term – are still available, however they have fallen out of favour with both homebuyers and lenders in recent years after many people found that their investments wouldn’t pay out enough to fully clear the mortgage debt.
Repayment mortgages have the advantage of being more straightforward and, crucially, are less risky than interest-only options. When you make your payment each month, you are covering not only the interest accumulating on the debt, but also repaying a portion of the mortgage balance, or capital. This means that, unless your payments fall into arrears or you voluntarily extend the term, you can be confident that the mortgage balance will be fully paid off after the agreed number of years.
Interest-only mortgages may still be appropriate for some homebuyers, and many buy to let mortgages are available on an interest-only basis. Where an appropriate investment plan exists, some lenders may also allow customers to take out a mortgage on a part-repayment, part-interest-only arrangement.
Read more about the different mortgage types available here.