Your monthly payments to the lender go towards reducing the amount you owe, as well as paying the interest they are charging. Every month you will pay off a small part of your mortgage, therefore building up equity in your home.  Sometimes this mortgage is also referred to as a “capital & Interest” mortgage and is a low risk method of repaying your mortgage.

This type of repayment method is probably the simplest way to repay your loan.  You can see your mortgage loan reducing every month and it guarantees to repay your loan over the selected term, as long as you meet all monthly payments.

You will find that in the early years your monthly payments will be mainly interest.  If you choose to repay the mortgage or move house during this period, you'll find that the amount you owe won't have gone down by very much however.

Your monthly payments only cover the actual interest charged on your loan, and do not actually reducing the loan itself. It is therefore important that you arrange some other way to repay the loan at the end of the term in one lump sum (i.e. setting up a suitable investment or savings plan).

By choosing this option you will need to check your investment or savings plan regularly, thus ensuring there are sufficient funds to repay your loan at the end of its term. If your savings or investment plan doesn’t grow according to what was predicted, then you will have a shortfall and will have to think about ways of making this up.

Because this type of repayment method means that you are only paying off the interest, and not the loan itself, your monthly payments will be lower, but this will not increase the equity in your home. This repayment method is suitable if you wish to self-manage the repayment of your loan - typically from the proceeds of selling your home, receiving an inheritance, or savings and investment plans.

It is your responsibility to ensure an adequate repayment method is in place, and if you can't repay it at the end of the term, you could lose your home.