This is the most common and safest way of repaying your mortgage. Each month part of your payment covers the outstanding interest and part goes towards repaying the original loan amount. So long as all payments are made in full and on time, your mortgage is guaranteed to be repaid by the end of the term.

Using this method only the monthly interest is repaid and there is no payment made towards repaying the original loan. This type of mortgage is often favoured by landlords. The advantage is that because no money is being put towards repaying the original loan amount then the monthly payment is lower, improving cash flow. With nothing going towards repaying the original loan amount the amount of mortgage outstanding does not decrease.

As with an interest only mortgage, the monthly amount paid to the lender simply covers the interest incurred on the mortgage. A separate scheme is then put in place such as an endowment or Individual Savings Account, in order to collect money for investment with the aim of growing the money invested to a level at which it can be used to repay the mortgage.