Paying back your mortgage

Reassurance that your mortgage will be repaid in full at the end of the term

If you’re looking to purchase a new home and you need to obtain a mortgage, there are a number of different types of mortgage available to consider. However, a capital and repayment mortgage is the most common type of mortgage that will typically be offered to most mortgage borrowers, although it will depend on your particular situation.

With this type of mortgage, you’ll make monthly repayments that go towards both the principal (the amount you borrowed) and the interest accruing on the loan. At the beginning of the term, most of the payment is used to cover the interest and only a small amount is paid towards reducing the mortgage.

Debt starts to reduce

Over the course of the repayments, increasingly over time more of the monthly payment is used to pay back the capital borrowed. As the debt reduces, the element of capital increases and the interest element reduces, so although the monthly repayment stays the same (assuming the interest rate remains unaltered) the debt starts to reduce more quickly as the term of the mortgage progresses.

With this type of mortgage you are also 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, if you remortgage or move home you may find it easier to obtain another mortgage loan.

Amount you borrowed

This means that the amount you owe reduces every month and, as long as you keep up the repayments, your mortgage will be repaid at the end of the set term, which is usually 25 years.

A capital and repayment mortgage is generally considered to be more favourable than other types of mortgage, as it allows you to pay off the mortgage loan amount sooner. Additionally, they typically have lower interest rates than other types of mortgage.

If you currently have an interest-only mortgage your monthly mortgage payments are only paying the interest due on the amount you borrowed. This means the original amount you borrowed will become due when your mortgage term comes to an end.

Most appropriate choice

So if you currently have an interest-only mortgage – or part of it is interest-only – if may be appropriate to look at changing some or all of this element to a capital repayment mortgage. If you move your entire mortgage to capital repayment you will have paid it off in full by the end of the term.

For the vast majority, a capital and repayment mortgage is the most appropriate choice – but changing your mortgage repayment type can have a big impact on your financial situation, so it’s really important that you understand your options and obtain professional mortgage advice.

Need help narrowing down the right mortgage type best suited to you?

Choosing the right type of mortgage is incredibly important – and getting it wrong could cost you a lot of money. Narrowing down the mortgage type that is best suited to your finances will help you to choose a lender and a mortgage product. To make an informed decision about the right mortgage for you or to discuss your situation, complete the form below and an Independent Mortgage Broke rwill be in touch.