Capital Repayment Mortgage

Capital Repayment mortgage, (capital repayment) is a mortgage where 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 a repayment 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.

Repayment mortgages are the most popular form of mortgage, it is worth remembering that when budgeting your monthly payments on a repayment mortgage that the term taken at the outset can be changed in the future.

Many customers are now taking repayments mortgages over 30 of even 35 years to keep their monthly repayments low in the initial years. A repayment mortgage term can be changed simply by contacting your mortgage lender in the future as and when you feel you can afford to increase your monthly repayment mortgage payments.It is important to remember that your mortgage lender may charge a small fee to change the term of your repayment mortgage.

Advantages and Disadvantages of Repayment mortgages

Advantages

Guaranteed to pay off your mortgage in full by the end of the repayment term, provided that you make all the required monthly mortgage repayments. 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 repaid 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.

Disadvantages

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.

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