Repayment Mortgages

Repayment mortgages

A repayment mortgage is a mortgage in which the monthly repayments go towards repaying the capital amount borrowed as well as the accrued interest. Mortgage statements show how the amount borrowed decreases throughout the term.

The big advantage of a repayment mortgage is that at the end of the mortgage term, the debt is repaid in full. It also removes the risk involved in an endowment mortgage, where ability to repay ultimately depends on performance of the endowment policy in the stockmarket. The borrower is also less likely to suffer from negative equity because the mortgage balance will be reducing month on month.

As time progresses, the equity percentage in the property increases. However, in the early years the bulk of the mortgage repayments go towards paying off the interest component, so not much of the capital is actually paid off for some time.

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