Repayment Mortgage
Is this the best mortgage type for you?
01.
What are Repayment Mortgages?
Repayment mortgages, also known as capital and interest mortgages, are the most common and widely available type of mortgage repayment option.
With this type of mortgage, your monthly payments cover both the loan amount (the capital) and the interest charged on the loan. You make regular payments over an agreed term—typically 25 years—until the entire loan and interest are fully repaid.
As you progress through the mortgage term, your balance steadily decreases. In the early years, a larger portion of your payment goes toward interest, while in the later years, more of it goes toward repaying the capital. By the end of the term, your mortgage will be completely paid off.
02.
Benefits of a Repayment Mortgage
- A repayment mortgage provides certainty that the loan will be fully repaid by the end of the agreed term, as long as you maintain your monthly payments.
- Most mortgage providers allow you to overpay up to 10% of the outstanding balance each year without incurring penalties.
- Many repayment mortgages offer ‘payment holidays’, giving you some flexibility if unexpected circumstances prevent you from making full monthly payments.
- You’ll receive an annual mortgage statement showing your payments and the remaining balance, helping you stay on top of your finances.
03.
FAQs
How Much Capital Do I Need to Repay Each Year?
The amount of capital you repay annually depends on how your mortgage interest is calculated—either daily, monthly, or annually.
If your interest is calculated daily, you’ll pay less interest overall, making it a more cost-effective option over the life of the loan.
Repayment mortgages offer flexibility—you can choose to have part of your loan on a capital and interest basis, and the rest on an interest-only basis. This can help reduce your monthly payments and make them more affordable.
As your financial situation improves (e.g. your income increases), you can adjust the proportion of capital repayment to pay off your mortgage faster.
What Is the Difference Between Long-Term and Short-Term Mortgages?
Long-Term Mortgages
Lower monthly payments, as the total is spread over a longer period.
More interest is paid over the life of the loan, resulting in a higher overall cost.
Preferred by many borrowers for affordability and ease of passing lenders’ affordability checks.
Short-Term Mortgages
Higher monthly payments, as the loan is repaid over a shorter period.
You’ll pay less interest overall and own your home outright sooner.
Suitable for those who can afford higher payments and want to reduce total borrowing costs.