What is a capital repayment mortgage?

• Do you want a guarantee that your home loan will be paid off at the end of your mortgage term?
• Would you like to pay off your mortgage in the safest way?
• Do you want to pay off some of both your debt and the interest each month?

If so, a capital repayment mortgage might be the right mortgage for you.

How does a capital repayment mortgage work?

Each month you pay off a portion of your capital debt and interest. When you come to the end of your mortgage term, you will have your entire loan (with interest) paid off.

When you start making capital repayments, the majority of your payments will be interest since you are paying off interest for the entire loan. However, as you continue to pay off your loan each month you will pay less and less interest since you only pay interest on your outstanding balance which gets smaller each month. There will eventually be a shift in your repayments when the majority of your repayment money goes towards paying off your actual loan instead of interest.

Since your interest payments get smaller and smaller per month, capital repayments work out much cheaper than interest-only repayments wherein you only pay back interest each month and pay off your actual loan at the end of your mortgage term. You could save over £50,000 on interest if you take out a capital repayment mortgage instead of an interest-only mortgage.

Capital repayment mortgages are the only guaranteed way to pay off your debt by the end of your mortgage term.

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Are there disadvantages in getting a capital repayment mortgage?

Yes. Since you are paying off some of your loan and interest at the same time, your monthly repayments will be higher than if you get an interest-only mortgage. Although your repayments will be higher, you will save more in the long run.

You can lower your repayments by extending your mortgage term. However, since this plan adds months or years to your mortgage, you will end up paying more interest in the end.

You can also opt to take out an interest-only mortgage for a short period to give you more access to funds early on in your mortgage term. Then, after 2 or 3 years when you are ready to make higher repayments each month, you can switch to a capital repayment mortgage in order to start paying off your loan.

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How to get a capital repayment mortgage in the UK

Just fill in this short form and a mortgage adviser will contact you to answer all of your questions, give you capital repayment mortgage advice, and get you on your way to buying your home.

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