What is a Repayment Mortgage?

One of the common types of mortgage loans, especially in the UK, is the repayment mortgage. It sounds self-explanatory because with all mortgages you have to pay them back. The idea behind the repayment mortgage is that you have a set monthly amount for a specific time frame. The payments go towards both the capital and interest accrued on the mortgage loan. In addition, the repayment mortgage guarantees that you will own your home free and clear at the end of the repayment period. For buyers looking to tackle both interest and capital, the repayment mortgage would be the best route.

How It Works

The initial payments go towards the accrued interest on the mortgage loan. Any money left over in the monthly payment goes towards the amount actual borrowed. Over time, interest reduced and more of the monthly payment goes towards the loan amount. As the payments are made, there is an increase in positive equity. This methodology guarantees that you will pay off your home in the time allotted, usually twenty-five years. With each annual statement, the decreased balance is reflected. It essentially functions like a personal loan with the exception that the amount is larger and the repayment period is longer.

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