Repayment, interest-only

A repayment mortgage guarantees you loan is paid off in full at the end of the agreed term.

With a repayment mortgage you make monthly payments that cover both the interest on the loan and the repayment of the loan itself.

This brings the peace of mind of knowing that you are reducing your debt every month.

A repayment mortgage offers the reassurance that once the final payment has been made you will have paid off the mortgage in full ( providing all the repayments have been made)

Interest-Only mortgage

With an interest-only mortgage you only pay-off the interest on the loan and none of the outstanding debt until the end of the mortgage term.

So in order to pay off the mortgage at the end of the term you have 2 options:

1) Use an investment plan that is designed to pay off the loan at the end of the mortgage term. There is no guarantee that the investment you choose will generate sufficient capital to pay off the outstanding debt at the end of the mortgage term.
2) Rely on the sale of the property to do this. This is a pure interest-only loan. Many lenders will not allow a pure interest loan unless the amount you are borrowing is less than 75% of the value of the property. Paying only interest without an additional investment vehicle means that your monthly payments will be considerably less that for a repayment loan.

Repayment and interest combined

With a combined mortgage a proportion of the loan is treated as an interest only mortgage and a proportion as a repayment mortgage. Therefore, you will use both repayment and interest only to pay the loan.

If you have an existing investment policy in place before seeking a mortgage you may want to consider this option.

This type of mortgage is most common with people who already have an investment
Product (an endowment, ISA or pension plan) prior to taking out the mortgage and want to use this to help reduce the additional cost of taking out the mortgage.

It is possible to use an investment policy to repay part of the loan, and then pay the remaining part with a repayment mortgage. For example, if you want to take out a £250,000 mortgage and already have an endowment that could pay £100,000 in a number of years time, you could consider an interest-only element to cover the first £100,000 and a repayment element for the remaining £150,000.