Repayment Mortgages

Repayment mortgages, which are sometimes called Capital and Interest Mortgages, are the most traditional type of mortgage you have to choose from when purchasing your home. Unlike modern mortgage structures, repayment mortgages allow you to own your home completely when the repayment term is complete. This is because you are actually paying down your loan with the payment you make each month.

How Repayment Mortgages Work

When you pay back a repayment mortgage, you will make monthly payments. These payments will be divided into a capital repayment portion and an interest payment portion. Capital repayments are the repayments on the amount you borrowed. Interest payments are the payments that are applied toward the interest that you pay for the money you borrowed.

At the beginning of your mortgage, the ratio between interest payment and capital repayment favours the interest side with each monthly payment. In other words, your monthly payment will go primarily towards interest, with a little applying towards the capital. As you continue to pay down your mortgage the ratio will shift. Soon you will be paying more towards the capital repayments and less towards the interest payments.

Do Repayment Mortgages Cost More?

Some homebuyers choose to overlook repayment mortgages because the monthly payment is more on this type of mortgage than the other types. However, even though the monthly payment is higher, the mortgage is not more expensive. With other loan structures you are paying just the interest and not paying off the capital, and when you end the loan term, you will still owe the entire amount you paid for the property.

Benefits of Repayment Mortgages

Repayment mortgages are the best way to build capital in your home. Each time you apply money towards capital repayments, you gain equity in your property. That equity can be borrowed against if you need some extra money form time to time. Also, when you sell the property, that money becomes yours to use to buy a new one. You are also guaranteed that will own your home when you are done paying off the home.

You will find that repayment mortgages are fairly easy to attain. Just about any lender you might choose will offer repayment mortgages. However, you may have limits on how much you can borrow based on your income and credit rating.

Remember that in order to benefit fully from repayment mortgages, you need to stay in the mortgage for more than three years. If you intend to move before three years, you will find that you do not build much capital in your mortgage. In these situations, interest-only or endowment mortgages may work better. However, if you see yourself staying in your home long-term, you need to seriously consider repayment mortgages for your lending option.