With a repayment mortgage (or capital and interest mortgage) your payments are made up of two parts, capital and interest. During the early years the main proportion of each of your monthly payments will go to interest payments whilst in the later years the main element will be capital payments. In other words, in the early years you don’t accrue much debt reduction.
Advantages Of A Repayment Mortgage
The Main advantage to a repayment or capital and interest mortgage is that you are guaranteed to pay off your mortgage within the set term provided you maintain your monthly payments. Another advantage to a repayment mortgage is the ability to see exactly how much you owe each year when you receive your annual mortgage statement.
Disadvantages Of A Repayment Mortgage
A repayment mortgage does not contain any life assurance element so a seperate life assurance policy needs to be taken out. This can often be seen as an extra to the mortgage and not seen as part of the mortgage which it should be. As there is no investment element to a repayment mortgage there is no chance of paying off your mortgage earlier than expected (due to strong performance in the stock market) or the possibility of any additional return over and above the mortgage debt which can sometimes happen with investment backed mortgages.