Payment types

There are two (or three if these two are combined) ways of making monthly payments on your mortgage:

Repayment Mortgage: A mortgage that pays off both the home loan and the interest at the same time. The amount outstanding will therefore reduce over the term. If you make all the repayments when they are due, then the mortgage will be guaranteed to be repaid at the end of the term.

Interest Only Mortgage: With this method the initial loan amount remains the same throughout the term of the loan, while your monthly mortgage repayments only pay the interest being charged on the loan each month. This means you are not reducing the loan amount (or capital) itself, and this will need to be repaid in some other way. The proposed method of repaying the capital will usually have to be stated at the time of the application and some lenders will.

There is also an option to select a “split” or “part-and-part” loan: a mortgage that is taken partly on a Capital and Interest basis and partly on an Interest Only basis.