Repayment mortgages are probably the oldest and simplest type of loan around. Despite a number of new variations on the repayment concept having been introduced in recent years, the basic principles have not changed, and a repayment mortgage is still one of the best ways to purchase a home.
A repayment mortgage is probably the simplest kind of home loan available. It works like this:
– You borrow an agreed amount
– You make repayments on a fixed schedule, including interest
– At the end of the mortgage term, you will owe nothing and will own your home outright
Each month’s repayment is made up of two parts:
The Capital Sum and The Interest
The capital sum is the money you originally borrowed, and you repay a part of this each month.
The interest payment can vary over time, depending on whether your mortgage’s interest rate changes, and how much you owe.
Whether your total monthly payment varies each month may also depend on your mortgage type. If you are on a fixed rate mortgage, your total monthly payment will be fixed for the duration of the fixed rate.
If you are on a mortgage with a variable rate, such as a tracker, discount or capped rate mortgage, your payments could potentially vary (up OR down) every month, if your bank or building society changes their interest rates.