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Understanding your mortgage choices

There are two main ways you can pay back your mortgage. You can choose one or the other, or a combination of both.

Repayment (capital and interest) mortgage

• Your payments are made up of interest and capital
• You gradually repay the loan over the term of your mortgage

With a repayment mortgage, you pay off your loan by making regular payments (normally monthly), that repay both the capital and interest. So over the years the amount you've borrowed reduces. Make all your repayments and by the end of the mortgage term you'll have paid it all off.

Interest-only mortgage

• Your payments only cover the interest on your loan
• At the end of the mortgage you have to pay off the amount you borrowed

With an interest-only mortgage, you'll have to make separate plans to pay off the sum you borrowed. This is normally done through an investment such as an endowment, ISA, or pension. If the investment doesn't perform as well as you'd hoped for, you'll still have to repay the mortgage at the end of the term.

RBS doesn't offer interest only mortgages to first time buyers or for mortgages over 75% loan to value (LTV).

A mixture of repayment and interest-only

You can combine both repayment types on one mortgage. For example if you have some existing investment plans you could use them to cover the interest-only element and have the remainder on a repayment basis.

The interest-only cap of 75% LTV still applies to combined mortgages. Any borrowing higher than 75% LTV can only be on a repayment basis.