Repayment Mortgage

A repayment mortgage is the traditional method of paying back a mortgage.

Each month, you pay a sum of money to your lender, which consists partly of repayment of your outstanding debt, plus interest on the mortgage amount that you owe, hence, a repayment mortgage.

This type of loan is safe. If you make all your payments throughout the repayment mortgage term, the loan is guaranteed to be repaid.

In order to keep the mortgage repayments down in the early years (when a lot is owed to the lender) only a small bit of capital is repaid in the early years of the loan. As the amount of the loan decreases, the amount of interest payable decreases, and a larger percentage of the repayment becomes available to repay the capital.

This means that if the borrowers move house again in two or three years time they may find that little of their original loan has been paid off. On moving, you have to cash in your loan and start again from scratch. If they move house on a regular basis they might still be paying off a mortgage at an age when they wish to retire.

In addition you will also need to arrange separate life assurance that will pay your loan off if you die – a must if you have any dependants.

A repayment mortgage might be the best choice if you intend to stay in the same property for some time. However, before you make a final decision you should consider the alternatives of an endowment mortgage or a pension-linked mortgage.