What does Repayment Mortgages mean?

The repayment mortgage, perhaps the most popular type of lending within the UK and not only, is that option in which you pay back monthly installments so that at the end of the term you finish off your mortgage payments. One important fact is that in the early phase of your mortgage (first 5, 10 years, depending), within your monthly installments there is more interest repayment that actual capital repayment.

Only as you advance in your mortgage term, will you come to pay more and more of your actual capital, and less of the amount will go towards the interest part of the loan. Basically, until you see your actual balance reducing in amount, there has to pass a few good years.

The good side of a repayment mortgage is that it actually offers a choice to people in general to buy their own home, people who otherwise wouldn’t afford acquiring property. Payment schemes and interests charge vary from lender to lender, but the most important fact is that if you keep to your monthly required payments and you are not late in your payments, at the end of the term (be it 10, 15, 25 years) your loan is paid back in full and you become the sole titleholder of the property, with no third parties having claim on it.

The main drawback of these repayment mortgages is that, until you indeed start reducing from the amount of your actual balance, there are some years of payments where the interest cost are way much higher than the payments towards the initial capital. Certainly, at the end of the term one will not receive back any excess payments, because you agreed to that interest rate, so for a 25 year mortgage of £100,000, you may end up paying back £225,000 with interest and fees and all the other charges. At first sight it is not a convenient option, but on the long term seems a solution which many people will take up, having no other funding options.