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Repayment Mortgages

With a repayment mortgage, also known as a capital repayment mortgage, you make monthly payments which contribute towards the total amount borrowed and the interest payable. Repayment mortgages are repaid over a specified period. Assuming you continue to make all your monthly contributions in full, the mortgage is guaranteed to be paid off in full at the end of the arranged mortgage term.

During the early years of the mortgage, the majority of each monthly payment goes towards paying the interest owed. The amount paid off each year increases as the mortgage term progresses.

Advantages

  • Provided that you make all the required monthly mortgage payments, you are guaranteed to pay off your mortgage in full by the end of the repayment period.

  • It removes the risk of having an investment, the performance of which is dependent on the stockmarket.

  • You are less likely to suffer from negative equity because your mortgage balance will be reducing month on month.

  • Assuming your property has not dropped in value, as the capital repayed increases you will see an increase in the level of equity in your property. Consequently, when you remortgage or move home you may find it easier to obtain a mortgage and you may be able to avoid paying a Mortgage Indemnity Guarantee.
Disadvantages

  • You would be unable to benefit from the stockmarket if it has performed well over the period of the mortgage. Therefore, there is no possibility of being able to pay off your mortgage early or receiving an additional lump sum at the end of the repayment period.

  • Because very little of the amount borrowed is paid off in the early years of the mortgage, if you were to move again in those early years it is likely that you would need to take out a new 20/25 year repayment mortgage, in order to make monthly repayment amounts manageable. i.e. the period for paying off your debt could be extended.
Repayment only.

Your monthly repayments consist of repaying the capital amount borrowed together with accrued interest. On your mortgage statement, normally received annually, you will see that the amount borrowed decreases throughout the term.

ADVANTAGES

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

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.

Endowment Mortgage
Interest Only Mortgages









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