Repayment Mortgage (Capital & Interest)
Each month you pay an amount of interest to the lender, plus a portion off the capital. Therefore, over the term of the mortgage the balance gradually reduces down to nothing.
Repayment mortgages guarantee that the whole loan is repaid by the end of the term, providing you maintain all your repayments, making them a low-risk option. They are the only type of mortgage that give this guarantee.
Repayment mortgages can be easily adapted if you run into temporary difficulties. For example, your lender might agree to increase the term, which would reduce your monthly payments.
However, repayment mortgages are structured so that your payments in the early years are made up mostly of interest and little goes to reducing the outstanding balance.
Critics say that this makes them unsuitable if you're likely to move in the early years, as you're left back at square one with little reduction in the amount you need to borrow. But, provided you stick to your original term when you move, that shouldn't be the case.
Your home may be repossessed if you do not keep up repayments on your mortgage.
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The Financial Services Authority does not regulate some forms of Mortgage.
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