When discussing repayment methods, what lenders are really asking is the simple question of ‘How are you intending to repay your mortgage?’ The traditional – and most common – way to repay the mortgage is by taking it on a capital and interest repayment basis, whereby each month the mortgage is gradually repaid. This gives the certainty that by the end of the term, provided you have kept up your repayments, the mortgage is guaranteed to be repaid.
The alternative option is to have the mortgage on an ‘interest only’ basis, whereby each month you only pay the interest on the loan, and the balance of the mortgage remains the same until the end of the term. At that point, you will then be expected to repay all of it, unless you have done so already. For interest only mortgages the lender will expect you to have some form of formal repayment vehicle in place, such as an endowment or perhaps the sale of another property which you already own. Each lender has their own criteria in terms of what kind of repayment vehicle they find acceptable, and it is best to seek advice when considering these.
Providing you have an appropriate repayment vehicle you can also take the mortgage on a part repayment and part interest only basis.