Repayment Mortgage

With a repayment mortgage (otherwise known as a capital repayment mortgage) you pay off some of the loan capital as well as the interest charged by the lender every month. This means every time you make a mortgage payment your next interest charge should be lower than the previous. This is because the interest is recalculated regularly so when you pay off some of the capital the lenders charge (interest rate) will be reduced in proportion to the remaining loan capital. This is particularly useful if you have a flexible repayment plan because you can make larger repayments when you have spare funds available and save money on interest charges over the life of the mortgage term.

With a repayment mortgage no additional investment vehicle is needed so you will probably be required to take out an insurance policy to protect your mortgage payments. This may be a good thing though because investment vehicles carry risk and many have fallen short in the past. It also means that you are guaranteed full ownership of the property at the end of the mortgage term, providing you have kept up your monthly repayments.

With a repayment mortgage you will also have to decide what sort of interest rate you are going to pay unless you just get the variable rate that comes as standard with most mortgages. The following interest rates are available in the UK:

• Fixed
• Capped
• Tracker
• Discount
• Variable
• Deferred