Repayment mortgages are a type of mortgage that has become more popular over the last decade. A repayment mortgage is where you pay back your loan in equal amounts every month, typically over 25 years. Repayment is calculated by dividing the amount owed with an interest rate to create an amortization schedule that will be paid off gradually, meaning you will end up paying less interest overall. Here we talk about what repayment mortgages are and how they work, as well as their advantages and disadvantages. We also discuss when people can get a repayment mortgage and how this links with retirement age.
The lender figures out how much interest and capital you need to pay each month in order for your mortgage loan to be repaid at the end of the term. At first, you will only take off a small amount of capital each month but after several years this changes so more repayment off the capital comes from monthly payments made.
In the final few years, you are paying back mainly the capital (the amount borrowed) and very little interest. This is because, at the start of the mortgage, most of your payments went towards paying the interest.
Let’s say you borrow £200,000 at an interest rate of four percent over 25 years. Your monthly repayment would be around £950 (depending on your personal circumstances). On top of that amount, there are other costs to consider like paying for the valuation or legal fees and stamp duty.
So there you have it! Repayment mortgages are a great way to repay your loan gradually over time and save on interest. They offer flexibility to overpay each month and have a guaranteed end date, making them ideal for those wanting security. However, the monthly repayments are higher than with other types of mortgage.
Momentum Mortgages are mortgage brokers based in Sevenoaks, Kent. We help people to buy, invest or remortgage property while reducing stress and saving time. We have helped clients all over Kent including Tunbridge Wells, Tonbridge, Maidstone, Swanley, Dartford, Bromley, Orpington and more.