How Should You Pay Back Your Mortgage : Mortgages Loans Rates
How Should You Pay Back Your Mortgage?
For most people a mortgage is the biggest sum of money they will ever deal with in their life. With this in mind it’s important that the right mortgage product is chosen not just for the short term but also the long term too. Many mortgages have tie-in periods, so what suits you today may not work out so well in a few years time. Everyone dreams of being mortgage free one day but what’s the best way to pay back your mortgage?
A repayment mortgage can be taken over different terms but the most common one is 25 years. Essentially you’ll pay back some of the capital you’ve borrowed and some of the interest with each monthly repayment you make. The end result of this is that after the 25 year period, you should have paid the mortgage off in full, meaning that you then own your house outright and should you go on to sell it, all the proceeds will be yours.
Another popular method of mortgage repayment is known as interest only. As the name suggests you only pay off some of the interest each month and not any of the capital. However a second payment is made to an investment fund with the idea being that at the end of the mortgage term, this fund will have grown sufficiently in order to pay off the outstanding capital that remains on your home.
This type of mortgage is much more of a risk than a repayment mortgage as there are no guarantees that the fund will grow enough over the years to pay off all of the capital. It’s quite common to hear of people who have gone down this route and been left with a shortfall at the end of the mortgage term. If this does happen then you’ll be expected to pay this off by other means at the end of the mortgage period.
The other potential pitfall of interest only mortgages is that should the interest rate rise, it will mean a bigger increase in your monthly payments than if you had a repayment type mortgage. Of course this could work the other way and rates could go down but these are notoriously difficult to predict over a long period of time so it really comes down to weighing up the pros and cons.
When making mortgage comparisons it’s important that you’re aware of all the facts, together with the benefits and drawbacks of each type before making a decision, as once you’ve taken on a new mortgage you could be tied into it for a number of years and ultimately might not be able to afford the repayments. Looking slightly further to the long term rather than the here-and-now could be one way of avoiding mortgage misery in the future.
Disclaimer: Andrew Regan writes on behalf of a digital marketing agency. He hopes you enjoyed his article, but urges you to seek further understanding of its topics before making any decisions based on its content.
How Should You Pay Back Your Mortgage? / Author: Andrew Regan
