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Methods of loan repayment

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Repayment periods

A loan may be repaid over any period ranging from 5 to 35 years. Certain restrictions may apply, depending on your age or the age of the property.

Methods of loan repayment

Repayment

With a Repayment mortgage the monthly repayment is split, some of it goes towards paying the interest on the loan and some towards repaying the capital i.e. the original amount borrowed.

The payments are worked out so that all of the capital will be repaid at the end of the mortgage term.

In the early years the payment will be mostly interest but in later years, more and more capital will be repaid each month.

It is important to note that a Repayment mortgage does not rely on the performance of a long term investment to ensure that the money borrowed is eventually repaid. As long as monthly payments are maintained during the term the loan will be paid off in full by the end.

Interest Only

With an Interest Only mortgage the payment to the Society is purely interest and when the mortgage term ends the original advance that you borrowed still has to be repaid.

This is usually done by using the proceeds of a long term investment such as an Endowment, PEP/ISA or a Personal Pension Plan - also known as a ‘repayment vehicle’.

A separate payment is made to the company, providing the long term investment and these premiums are invested on your behalf. After a given period, the policy matures and the ‘capital’ which you owe the Society must be repaid. None of these long term investments are guaranteed to repay this capital. Please note that ISAs replaced PEPs with effect from 6th April 1999. When considering an Interest Only mortgage you need to carefully assess the appropriateness of this to your circumstances now and in the future.

The Society will not normally consider Interest Only loans without a repayment vehicle.

It is your responsibility to ensure the long term investment exists and that premiums are being paid or that you have other means of repaying the capital. You will receive notification each year in your Annual Mortgage Statement to remind you of your responsibility to ensure that any repayment vehicle remains on track to repay your mortgage. Periodically we may contact you to remind you of the need to track your repayment vehicle performance.

Part Repayment and Part Interest Only

A combination of Repayment and Interest Only.

Mortgage Term Beyond Retirement

If you require your mortgage term to extend beyond your expected retirement date we will need to ensure that this will continue to be affordable to you and meets all the Society’s responsible lending criteria. Affordability will be closely reviewed and proof of income into retirement may be requested.

Life Cover

Where an endowment policy has been arranged, this will include life cover to repay the capital’ in the event of death.

With any other type of mortgage, it is important to consider arranging suitable life cover or other insurance to ensure the mortgage is repaid in the event of death or serious illness.

IMPORTANT

It is the borrowers responsibility to ensure that an adequate repayment vehicle exists and to check regularly to ensure that the policy is sufficient for this purpose.
If the mortgage is not repaid at the end of the selected term, the term may have to be extended or the property sold.