The difference between the types of loan
The main differences between these types of loan are (assuming like for like conditions):
With an amortising loan, unless there is a change in interest rates, the regular repayment cost will be the same throughout the life of the loan, and you may find that this makes them easier to manage.
With a serial loan the combined cost of the regular capital and interest payments is initially greater than the regular cost of repaying an amortised repayment loan. (So with a serial loan you will initially have to budget more for the regular repayments than you would for an amortised loan). However, as you repay the capital faster with a serial loan, the cost of the regular interest payments will reduce over time (in line with the reduction in the loan capital amount outstanding) until eventually the combined cost of the regular repayments will be less than the cost of the regular amortised repayment. You will therefore pay less interest over the entire life of the loan.
Interest only mortgages: In certain circumstances, and on a case-by-case basis, we may also be able to consider offering a mortgage loan on an interest payment only basis. This could be either:
- for an initial interest only period, then followed by scheduled capital and interest repayments, or
- Interest only for the full term with capital repayment as a bullet payment at the end of the loan (e.g. with payment to come from a maturing endowment policy). In these circumstances, the Bank will need to satisfy itself that you will have the means to meet the cost of repaying the mortgage in full at maturity. Overall, you will pay more interest on an interest payment only loan, than had you been reducing the loan capital over time.
Interest rate type
We can offer you:
A variable interest rate which, for loans made in Pounds Sterling is linked to the Bank of England base rate, or to the Bank’s funding rate if drawn in any other currency.
With a variable rate linked to a base rate, the interest rate payable will go up or down in line with increases/decreases in the agreed base rate.
! You need to consider the very real possibility that interest rates will rise at some point, and your ability to meet the additional cost of the repayments when they do. For instance a 1% rise in the Bank of England base rate would result in an additional monthly cost of approximately GBP 42.50 for every GBP 50,000 borrowed.