Repayment or interest only

Endowment policies used to be a popular way to build up funds to repay the capital of interest-only mortgages. However, some people have found these policies haven't built up enough money to pay off the full mortgage amount at the end of the mortgage term. To find out more, visit our endowments section.

Key pros and cons of interest-only

Pros

• If your investment does well on the stock market, you may have enough to pay off your mortgage and have a lump sum left over-but it's by no means guaranteed.
• Your investment can go with you when you move or re-mortgage your home.

Cons

• It is risky. There are no guarantees your investment will grow sufficiently to repay your loan. If the investment does not do well, you may have to pay more into it to cover your mortgage debt, or be left with some of the mortgage to repay at the end.

How is the monthly interest worked out?
You pay interest on the amount you owe (the capital). As the amount you owe does not vary, your monthly payments will only change if interest rates change. This means you owe as much after 25 years as you did at the start. In the meantime, however, your investments should have grown enough to cover the mortgage debt - but remember this is not guaranteed.

Once you've decided if you want a repayment or interest-only mortgage, you are ready for step three choosing a mortgage type.