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Repayment Mortgage

A repayment mortgage, traditionally known as a capital and interest, is when you pay the capital and interest together in your monthly payment over the term of the mortgage. In the early years your payment consists mainly of interest however over time as the mortgage balance reduces the balance of the payments also changes with more capital being paid off. At the end of the term you are assured your mortgage will be paid off assuming you have maintained your payments.

Repayment mortgages have become popular again as people like the assurance of knowing their mortgages will be paid off at the end of the term. On your mortgage statement, normally received annually, you will see that the outstanding balance decreases throughout the term.

Advantages of a repayment mortgage

• At the end of the term, you are safe in the knowledge that the total amount of the debt has been repaid.
• Overpayments and lump sum payments into your mortgage account can be made, reducing both the interest and capital amounts repayable.
• Life assurance cover is not always necessary in taking out this type of mortgage.

Disadvantages of a repayment mortgage

• There may be financial penalties for making lump sum/overpayments into your mortgage account. In the early years of a repayment mortgage the majority of the monthly repayment is interest rather than capital. For borrowers moving house regularly, this can result in little of the capital being paid off.
• If you have no life assurance cover in place and die before the loan is repaid, the mortgage will still need to be repaid. This may result in the property having to be sold to repay the debt owed.