3 ways to pay your mortgage back tips, Home finance advice, House repayments guide

3 ways to pay your mortgage back

28 Oct 2022

3 ways to pay your mortgage back

This guide provides an overview on the factors that impact mortgage repayments. You’ll also find a handy calculator to work out yours. And a series of repayment tables shows you the approximate amount you could expect to pay based upon specific mortgage amounts or interest rates.

What factors affect mortgage repayments

First of all, the amount you will pay each month for your mortgage depends on the amount of money borrowed, the term and the interest rate.

You will pay lower monthly capital repayments if you take out a mortgage for a longer term. However, it will also mean that your monthly mortgage payment will be higher as the debt is spread out over a longer duration.

Your final interest rates will vary depending on many factors. But generally speaking, the higher your risk level, the higher you’re likely get. The risk of the deal could be assessed by your personal circumstances or current market conditions.

A mortgage broker can help ensure that you are able to afford your mortgage repayments. He will find the best rates for you and guide you in choosing the right product type.

There are two main types mortgage payments. You have the option to choose from one or the other or a combination.

Repayment mortgage

Capital and interest

  • Your payments include capital and interest
  • Your mortgage will gradually pay off the loan.

Repayment mortgages are subject to interest. These payments are included in your monthly instalments. All you have to do is make your monthly payments, and the mortgage term will be over.

Only interest mortgage

Maximum 75% loan-to-value mortgages

  • Your payment will only cover the interest you owe on your loan
  • You have to repay the loan amount at the end your mortgage

If you have an interest-only loan, you’ll need separate plans for repaying the borrowed amount. This can be done with an investment like an endowment.

Combination of both

Only Repayment and Interest

  • Also known as a part and part mortgage or a partial interest mortgage
  • For combined mortgages the interest-only cap at 75% loan to worth (LTV), remains in effect

Combining the interest-only and repayment options on one mortgage is possible. For example, you might use existing investment plans to cover the interest-only portion of the mortgage and repay the remaining amount.

If you are looking for an £180,000 mortgage for example, it would be down to your mortgage broker to work out the repayments on an £180,000 mortgage and the best solution for your circumstances.

One little bit goes a long ways

It doesn’t take long to pay off your mortgage. You can also save thousands of pounds in interest. This is because you are charged less interest for repaying some of the outstanding debt.

You should always have money saved for rainy days

It would help if you always considered saving money for rainy days in case of an unexpected event.

Overpayment penalties are to be avoided

Most mortgages have a cap or minimum amount of overpayments. If you pay more, penalties may be applied.

Timing is very important.

Consider when it’s the best time to pay more. It may be more beneficial to pay a one-off fee for older mortgages at the end of the calendar year.

Many factors can influence how your mortgage repayments will look, including the amount you actually borrow and the interest rates you pay.

How interest rates calculated

The risk level and product type of your mortgage determine mortgage interest rates.

Here are some things you can do to lower the risk of the agreement

  • Making an additional deposit: Although most mortgages require a minimum deposit of 10%, you’ll have better chances of getting a right rate.
  • Clear any bad credit issues: While it is possible to get a mortgage with certain types of poor credit but you will have a better chance of getting the best interest-rate available if your credit problems are resolved.
  • Ask a mortgage agent: An experienced mortgage broker can help you find the best lender to match your needs. The best rate means that you will pay less each month.

Other than the above factors, some mortgage lenders might offer you a higher rate of interest if your income is low or complex.

How mortgage types affect interest rates

There are many options for mortgage products. The one that you choose could have a big impact on the interest rate and, therefore, your monthly payments.

  • Fixed Rate: You pay for the security that you know what you will have to pay each monthly.
  • Variable mortgage: An variable-rate mortgage can have an interest that can move up or down at any time during the term.
  • The Tracker rate: An tracker mortgage has an interest rate that is tied to an external rate, typically the Bank of England’s base rates.
  • The lowest monthly payments for interest-only mortgages are. This is because only the interest payment (capital repayments) is due each month. The mortgage debt must be paid in full at the end using a pre-agreed repayment method.
  • The is a mix of interest and repayment. You will pay some of the loan amount during your mortgage term. The rest will remain at its end. Check out our calculator below to see what your repayments will look like if the mortgage type you chose is this one.

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