The only sure-fire way to completely own your home at the end of the mortgage term (the ‘term’ is the repayment period until the mortgage is paid off, usually 25 years, but can be shorter or longer) is to get a repayment mortgage.
With a repayment option, whenever you pay money off your mortgage you reduce both the loan and the interest until the debt is completely paid off.
The downside of repayment mortgages is that for the first several years you'll mostly repay interest. Therefore, if you switch to a new mortgage in the early years, it’s unlikely that you will have paid off much – if any – of the capital.
The upside is, as the years tick by, you’ll start to notice that your monthly payments are reducing more and more of the capital debt (the money borrowed is called the capital) as your mortgage gradually shrinks away to nothing.
The Credit Crunch and Mortgages: One positive result of the credit crunch for mortgage holders was that the Bank of England started to slash its interest rates to help stimulate the economy. In September 2008, the BOEBR (Bank of England Base Rate) stood at 5%, but a half a percent drop in October 2008 was followed by five more consecutive monthly rate cuts until a record low of 0.5% was reached in March 2009. This, of course, was great news for millions of homeowners, whose monthly mortgage repayments, pegged to the BOEBR, suddenly got a whole lot cheaper. The only mortgage holders who didn’t benefit were those on fixed rate mortgages, who would have been locked in to paying the same monthly amount for the duration of the ‘fix’.
Another point worth noting is that repayment mortgages don’t always require life insurance, potentially saving you a few extra pounds each week. Check the small print of the mortgage deal to see if this is the case.
Next - Part 3: Interest-Only Mortgages
