Repayment Mortgage
A Repayment Mortgage is structured so that the monthly mortgage payments comprise of capital and interest, paying off the original amount borrowed as well as the interest that would be accrued over the mortgage term, by the end of the term.
It is a guaranteed way of repaying the loan provided that all payments are made and kept up with. The amount that you owe decreases as time goes on.
It is advisable to arrange life cover to protect the mortgage, to ensure the loan can be repaid in the event of your premature death and to avoid the house having to be sold in order to repay the mortgage debt
Interest Only Mortgage
As you only make interest only payments to the lender. The original loan amount remains outstanding for the term of the loan. You would require a suitable repayment vehicle to repay the loan at the end of the term.
The amount originally borrowed on Interest Only mortgages does not change because you pay off the capital at the end of the term. This is done by contributing towards the repayment vehicle which aims to provide a lump sum to repay the loan at the end of the term.
This type of mortgage is higher risk because the investment, is not guaranteed to appreciate in value.
If the investment does not provide as good a return as anticipated, it may not cover the loan. It your responsibility to ensure that you can repay the loan at the end of the term.