Repayment Methods

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Capital Repayment Mortgages

Capital repayment mortgages are home loans where you repay capital, which is the amount you borrowed along with some interest each month. A repayment mortgage will usually be guaranteed to be repaid by the end of the mortgage term (around 25 years) as long as you meet all of your monthly payments. If you are purchasing a home to live in rather than buy to let, capital and interest mortgages are the most common mortgage type in the current market. .

Capital and interest repayments consist of monthly payments to repay your mortgage. In the initial years of your mortgage term, a larger proportion of the monthly payment will go towards interest and a smaller amount towards capital. Over time the balance switches, with more going towards paying off your mortgage and less on interest. So, although during the first few years of your mortgage repayments it may feel like you are not paying much off the debt, in time, the amount of capital coming off the debt will accelerate until the mortgage term ends. As you build up more equity you will also be able to access deals with lower interest rates which may allow you to pay off more of the loan by making overpayments too.

Capital & Interest Mortgages

There are several types of capital repayment mortgages including:

  • Fixed-Rate Mortgages – The interest rate remains fixed for a set period
  • Tracker Rate Mortgages – The interest rate tracks the base rate plus a set percentage
  • Discount Mortgages – The Interest rate tracks the lender’s standard variable rate minus a set percentage
  • Flexible & Offset mortgages – these can be either fixed, tracker, discounted or variable rates

You can find out further information on the different mortgages available on our mortgage types pages.

If you have any questions or would like to find out further information regarding capital repayment mortgages, contact us today to speak to one of us.

Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up the repayments on your mortgage.

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What is a capital repayment mortgage?

A Capital Repayment Mortgage involves making monthly repayments for an agreed-upon period until you’ve paid back your mortgage. The payments include both interest and capital so the debt reduces gradually over the term. This is the most common type of mortgage and is usually offered as standard. This type of mortgage will allow you to gradually pay off your mortgage rather than paying a large sum of money at once, or at the end of the term.

What is the advantage of a capital repayment mortgage?

The primary benefit of a Capital Repayment Mortgage is the overall interest you will pay back. As you progress through the term the debt reduces and as a result the amount of interest per month also reduces too. The impact of this is that slowly over time the monthly payment will become less interest and more capital loaded. Compared to other types of mortgage you will pay less interest overall as a result.

What is the most common term length of a capital repayment mortgage?

The most common term length for a Capital repayment mortgage is usually 25 years. But your term will depend on the amount you can pay back each month. The shorter the mortgage term then the quicker the debt will reduce and less overall interest will be payable.

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