Mortgage types and features: repayment methods, rates, products, schemes and Islamic finance

MRT2 Learning Outcome 6 is the largest part of the unit. It covers how a mortgage is repaid, how the interest rate is set, the main product types, government-backed schemes, shared ownership and equity share, and Islamic home finance. The exam tests both definitions and suitability: which feature fits which customer. Figures here are current at 30 October 2026, with Bank Rate at 3.75%. That is the version of the rules CeMAP® candidates should use.

1. Repayment methods

Method	How it works	Main point to remember
Repayment (capital and interest)	Each payment covers interest and some capital. The loan is cleared by the end of the term if all payments are made.	Early payments are mostly interest.
Interest-only	Payments cover interest only. The capital is repaid at the end from a separate repayment strategy.	The lender needs evidence of a clearly understood, credible strategy. Speculative strategies are not acceptable (MCOB 11.6.41R). House-price growth or an expected inheritance tend to show a breach (MCOB 11.6.46E). The strategy must be reviewed at least once during the term (MCOB 11.6.49R).
Part-and-part	Part of the loan is on repayment, part on interest-only.	Only the interest-only part needs a repayment strategy.
Retirement interest-only (RIO)	Monthly interest is paid for life. The capital is normally repaid when the property is sold after death or a move into long-term care.	The adviser must weigh the effect on means-tested benefits and tax (MCOB 4.7A.10AR).
Interest-only into retirement	A standard mortgage whose term runs past the borrower's expected retirement.	Affordability must consider income after retirement (MCOB 11.6.14R). Extending a term into retirement is presumed material to affordability (MCOB 11.6.4E).

Worked example (rounded). £200,000 over 25 years at 4.5%:

Method	Monthly payment	Total interest	Owed at end
Repayment	about £1,111.66	about £133,500	£0
Interest-only	£750.00	£225,000	£200,000 (plus the cost of the repayment strategy)

Interest-only costs less each month, but more in total, and the capital is still owed at the end.