A repayment mortgage, also known as a capital and interest mortgage, is a type of home loan where the borrower repays both the principal and the interest on the loan over the life of the mortgage. With this type of mortgage, the monthly payments are higher than with an interest-only mortgage, but the loan is paid off in full by the end of the loan term.
In a repayment mortgage, a portion of each monthly payment is applied to the interest on the loan, while the rest is applied to reducing the principal balance. This means that over time, the borrower is building equity in the property and reducing the amount of debt owed.
Repayment mortgages are considered to be a safer option compared to interest-only mortgages, as the borrower is building equity in the property and reducing their debt over time. However, the higher monthly payments may be a challenge for some borrowers.
It is important to carefully consider the terms and conditions of a repayment mortgage, as well as the borrower’s financial situation and ability to make the higher monthly payments, before deciding if this type of loan is right for them.