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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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