The two most common ways of repaying your mortgage are capital and interest and interest only.
This is the most appropriate method of repaying a residential mortgage. Your monthly payments will comprise a portion to pay the interest on the money you’ve borrowed, as well as a portion to repay the capital sum (the amount you borrowed).
The benefit of capital repayment is that you can see the mortgage reducing each year (albeit very slowly in the early years) and you are guaranteed to repay the debt at the end of the mortgage term, as long as payments are maintained.
If you opt for an interest only loan, your monthly payments will only cover the interest on the mortgage balance. The capital (the amount you borrowed) will remain the same and will need to be repaid at the end of the mortgage term. This means you will need a separate investment or combination of investments to generate the capital required.
Lenders are becoming increasingly strict in terms of the types of investments they will accept as a repayment vehicle, if you fail to generate enough to repay your mortgage by the end of the mortgage term, you may be forced to sell your property and downsize.