Repayment Mortgages

When you decide to apply for a mortgage, one of the key decisions that you have to make is the choice between an interest only mortgage or a repayment mortgage - you are either paying just the monthly interest on the money you have borrowed, or paying both the interest and a portion of the capital each month.

A repayment mortgage is easy to understand, simple and probably the most straightforward way of repaying your home loan. At the end of the mortgage term, the loan will have been totally repaid (so long as all the monthly repayments have been maintained and paid on time)

With a repayment mortgage you pay part interest and part capital repayments to the lender each month over an agreed period of time (this is referred to as the 'term' of the mortgage and is most usually fixed at 25 years). No other repayment vehicle is needed.

When the term of the repayment mortgage has come to an end, and assuming that you have made each and every monthly repayment, all the borrowed capital will have been repaid and you will own your home free of mortgage debt.

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Repayment mortgage

A repayment mortgage is also known as a capital and interest mortgage. Your monthly payments will gradually pay off the amount of capital that you owe as well as paying the interest charged by the lender.

Because you are paying off both the capital and the interest with each monthly payment, the amount you pay to your lender each month is normally more than it would be if you had an interest only mortgage. And, with a repayment mortgage, there is no need to put money aside into a separate investment vehicle to pay off the principal.

So, provided you have made all the agreed monthly payments, the mortgage loan that you originally took out will be fully paid off by the end of the mortgage term and you will then own your own home outright.