Types of repayment options

• Repayment Remortgage

Considered a low-risk repayment method, this requires you to make a single monthly repayment. Each payment pays in part the interest on the debt, lowering the total amount that is owed.

In other words, a repayment remortgage lets you slowly reduce the principal of the loan, as each repayment is part-interest and part-capital. The benefit of this is that you end up paying less and less interest as the principal becomes smaller over time.

One thing that goes against a repayment remortgage however is that it is not covered under an all-in-one cover life assurance or payment protection policy. Taking out one of these policies will require you to pay for it separately. An interest-only remortgage does not have this restriction.

• Interest-only Remortgage

With an interest-only remortgage, you pay the interest on the loan’s entire amount for the term of the mortgage. This means your monthly repayments will be relatively low since no capital is included. However, it is advisable if you go this route that you have a form of investment elsewhere so that you can save enough to settle the loan at the end of its term.

There are three popular forms of investment that are suited for interest-only mortgages. These are ISAs, Pensions and Endowments.

An interest-only remortgage carries a higher risk than repayment remortgage since your capacity to pay off the capital hinges on the long-term outcome of your investment.