How to Invest in The UK Property Market
Whatever the lender and product chosen, a method of repayment needs to be selected.
There are two ways of repaying a mortgage capital and interest often called repayment and interest only. Strictly speaking, the interestonly method doesn repay the mortgage at all, as no capital payments are made. The outstanding balance will have to be repaid in some other way. This can be from the sale of the property, the proceeds of an investment or any other source of funds available when the mortgage is due to be redeemed. Repayment, as the term suggests, means that both capital and interest are paid throughout the term of the mortgage. At the end of the term the loan has been repaid.
The monthly outgoings are lower. on an interestonly basis. This can be an ISA individual savings account, an endowment policy now widely discredited as expensive, opaque and inefficient or a personal pension if you qualify for one. In all cases this will incur extra cost something the interestonly borrower usually wants to avoid and will involve stock market investment, with no certainty that the mortgage will be cleared.
Because of the benefits of reduced cost and tax relief, mortgage advisers frequently advise their clients to take out the loan on an interestonly basis. But this advice will not be appropriate in all cases. If, for example, the longterm objective is income in retirement this will only be possible if the mortgage is ultimately repaid. In this case a repayment mortgage is the only sensible choice.