Bullet repayment loan

In a typical loan arrangement, the borrower commits to repay interest and principal on a regular basis so that the loan is cleared over its term. This is the structure of a repayment mortgage. Each monthly repayment consists of a bit of interest and a bit of capital. The split varies – in the early years the majority of each payment is interest to reflect the large amount of capital outstanding. In the latter years, most of every repayment is capital.

However, there is another type of mortgage where the repayment pattern is different – the interest-only mortgage. Here, the borrower just pays off interest charges on a monthly basis. As such, the repayment to the lender is smaller. Then, at the end of the term of the loan – say 25 years – the capital is repaid in one chunk.

This is also known as a ‘bullet repayment loan’. The lender will normally expect the borrower to have a savings plan in place from the start of the loan that will fund the final repayment of capital.

• See Tim Bennett’s video tutorial: Beginner’s guide to mortgages.

66% off newsstand price

12 issues (and much more) for just £12

That’s right. We’ll give you 12 issues of MoneyWeek magazine, complete access to our exclusive web articles, our latest wealth building reports and videos as well as our subscriber-only email… for just £12.

That’s just £1 per week for Britain’s best-selling financial magazine.

Click here to take advantage of our offer

Britain is leaving the European Union. Donald Trump is reducing America’s role in global markets. Both will have profound consequences for you as an investor.

MoneyWeek analyses the critical issues facing British investors on a weekly basis. And, unlike other publications, we provide you with the solutions to help you turn a situation to your financial advantage.

Take up our offer today, and we’ll send you three of our most important investment reports:

All three of these reports are yours when you take up our 12 issues for £12 offer today.

MoneyWeek has been advising private British investors on what to do with their money since 2000. Our calls over that period have enabled our readers to both make and save a great deal of money – hence our position as the UK’s most-trusted investment publication.

Click here to subscribe for just £12