Repayment Mortgages

The repayment mortgage - sometimes called the capital repayment mortgage - is the only risk-free way of making sure that you (rather then your lender) will own your home after the mortgage comes to an end. With this type of repayment method, part of your monthly mortgage payment is used to pay interest and part is used to pay back the capital you have borrowed.

In the early years of the loan, most of each month's payment is comprised of interest. As the term progresses, more capital is repaid with the result that the balance outstanding reduces. This means that you gradually pay off the loan and - providing you keep up your repayments - you are guaranteed to have repaid it in full by the end of your mortgage term. If you don't want to take any chances with your mortgage, this is the repayment method to go for.

Advantages

• It's a simple, clear approach - you can see your loan reducing every year.
• Providing full monthly payments are maintained throughout the mortgage term, the mortgage will be repaid eventually, whatever happens to the stockmarket or any other investment market.

Disadvantages

• In the early years of the loan, your payments will mainly go towards paying off the interest, so the capital outstanding on the mortgage is hardly reduced. This means that if you want to repay the mortgage or move house in the early years, you'll find that the amount you owe won't have reduced by very much.