Capital Repayment Mortgages
What is a Capital Repayment Mortgage?
- Are you looking for a secure way to pay off your loan?
- Would you like to make sure that your entire loan will be paid off at the end of the mortgage term?
- both the interest and the capital debt in the repayments?
If the answer is Yes, read the information below as a capital repayment mortgage could be the best choice for you.
How does a Capital Repayment Mortgage work ?
In your monthly payments, you pay off both a part of the capital debt and the interest. When you reach the end of your term, your will have paid off the entire loan.
At the start of your repayment period, monthly repayments will mainly contribute towards interest as you are paying off interest for entire loan. As you repay your loan your outstanding capital debt will get smaller . Since you pay interest on this remaining balance, you will progressively pay less and less interest. Eventually most of your monthly repayments will go towards the capital debt rather than the interest.
Compared to interest-only mortgages, where you only pay back interest every month (and pay off the original loan at the end of the term), capital repayment mortgages are a less expensive choice as your interest repayments diminish every month. If you decide to go for a capital repayment mortgage, rather than an interest-only one, you could potentially save in the excess of £50,000 on interest.
Advantages and Disavantages of Capital Repayment Mortgages
- You are sure to pay off your mortgage
- You can save hundreds of pounds in interest
- Compared to an interest-only mortgage, your repayments will be higher as a percentage of it will be used towards the capital debt repayment.
What are the disadvantages of a Capital Repayment Mortgage?
Your monthly repayments will be higher than an interest only mortgage deal. But this will save you money in the long run.
A way to lower your payments is to increase your mortgage term, but by doing so you will have to pay more interest eventually.
An alternative is to go for an interest-only mortgage to start with, and then switch to a capital repayment mortgage (and start paying off the loan) when you have got more money available, for example if you think your salary will go up in the future.