Repayment methods

As with any lender, when you take out your mortgage with us, you will need to select the term of your mortgage. You will need to have paid off your mortgage by the end of this term so it is important that you understand how your mortgage is to be repaid.

What repayment options are available?

A mortgage consists of two main components, the capital sum and interest. Interest is an amount of money charged by the lender advancing the mortgage, expressed as a percentage.

With a Skipton mortgage, subject to our criteria, you have a choice of repayment methods - repayment (also known as capital and interest), Interest Only, or a combination of both (Part and Part). Our Mortgage Advisers can talk you through the various options available and work out which one could be right for you.

Repayment mortgage (capital and interest)

• This is the most popular method and the route most borrowers prefer to take, in order to be sure the loan including interest is fully repaid at the end of term.
• The monthly payment you make covers both the interest charged and a portion of the original amount of money you borrowed.
• In the early years, your monthly payments will be geared more to paying off the interest and in later years, more of your monthly payments will be repaying the capital sum.
• Providing you make all payments including any fees or charges when due, the loan will be repaid at the end of the term.
• The maximum term for a repayment mortgage is 40 years.

Interest Only mortgage

• Your payments will be lower than with a repayment option, but you'll need to have a strategy to repay the capital (i.e. the loan) at the end of the mortgage term.
• The monthly payments over the mortgage term only cover the interest on the amount you have borrowed. This means your mortgage balance will not decrease, so there will be more interest to be paid overall, compared to the repayment method.
• Any remaining interest, fees or charges will be owed in full at the end of the term.
• It is entirely your responsibility to ensure that at the end of the term the remaining balance on your mortgage is repaid in full by your repayment strategy.
• Our Interest Only mortgages are restricted to applications where the loan amount is 70% of the property value or less.
• The maximum term for Interest Only is 25 years.
• Our Interest Only mortgages are not available to First Time Buyers.

Repayment Strategies for Interest Only mortgages

We accept two main types of repayment strategies for repaying the capital borrowed:

1. An endowment policy provided by a regulated firm.
2. The following defined types of assets owned by the customer:
(i) Equity in other UK property - Buy To Lets, holiday lets and second homes must be owned in the applicant's name only.
(ii) Pension - 25% of the projected pension pot can be used as a repayment method, subject to minimum projected pot value of £600,000 or a minimum current pot of £300,000.
(iii) UK shares and bonds - includes Sharesave schemes and Premium Bonds.
(iv) UK cash savings
(v) Sale of main residence - The maximum loan amount for the Interest Only element is 50% of the property value and a minimum of £300,000 of equity must be remaining in the property after the total amount borrowed.
For example, if your repayment strategy is to sell your main residence and it's valued at £500,000, the maximum amount you could borrow would be £200,000.

The value of the above options must show they have sufficient funds within them, or the ability to increase in value over the term of the mortgage, to repay the loan.

Part and Part

• This is a combination of both repayment and Interest Only mortgage.
• Restricted to applications where the loan amount is 80% of the property value or less.
• The maximum term for Part and Part is 25 years.
• It's your responsibility to ensure all of the mortgage is repaid by the end of the term. You will need to have a repayment strategy in place to enable you to pay off the part of the loan on Interest Only.

For example, a loan of £50,000 could be made up of £30,000 repayment and £20,000 Interest Only, so there would be a remaining capital balance of £20,000 to repay at the end of your mortgage term.

Things to consider

Mortgage term

While you may typically expect to repay your mortgage over a given period of time, for example 25 years, in some circumstances it could be more appropriate for you to take a shorter, or a longer term.

• A shorter term may mean your payments are higher but could substantially reduce the amount of interest you pay on the loan overall.
• A longer term would enable you to reduce your monthly payments, but would increase the amount of interest paid overall. However, you should consider the length of term in relation to your retirement, when your income is likely to reduce. This may impact on the term of mortgage available to you and we will need to check the level of income you are likely to receive in retirement if the term extends into retirement.

Protecting your family or dependants

Consider the cost of life cover to repay your mortgage in the event of your death which will help protect your family or dependants from liability for the mortgage if all the payments are made in full and on time.