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This is the normal method of choice by clients and is certainly more favoured by lenders to repay your mortgage balance, as each month you will repay part capital and part interest. In the early years of your repayment you will find a high proportion of interest being repaid, which will change to a greater proportion of capital once you are half way through the mortgage term.
What attracts most clients to a repayment mortgage is the very positive nature of being able to see your mortgage balance reducing each year, giving you that comfort factor that one day you will own your property outright with no mortgage providing payments are maintained.
The other positive feature which most lenders will now accept, is that you can normally overpay by up to 10% of the mortgage balance each year without being penalized. Many clients are now taking advantage of this feature as it is not a commitment that you have to make, and you can vary your monthly over repayment, and if you wish make lump sum repayments of capital within the 10% band.
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More About Repayment Mortgages
What does a Repayment Mortgage mean A repayment mortgage means your monthly payments consist of both the capital amount borrowed together with interest. Your lender will keep you advised about how much you have repaid. Initially, most of your monthly payment pays off the interest and what’s left goes towards reducing what you’ve actually borrowed. As time goes on, the ‘balance’ changes and as the interest charges reduce, more and more of your monthly repayment is used to reduce the Finance.
A repayment mortgage is a mortgage contract under which the customer is obliged to make payments of interest and capital which are designed to repay the mortgage over the agreed term. As long as you maintain the payments, the whole Finance will be paid off over the term of the Finance. Many people opt for a repayment mortgage on for this very reason – a repayment mortgage is the safest option as it means that you will have that guarantee. With a repayment mortgage the entire mortgage is paid back over an agreed period of time.
This is referred to as the mortgage’s term and is usually set at 25-30 years. When the mortgage’s term has come to its end, providing all the repayments have been met, the property will be in the hands of the homeowner. A repayment mortgage means that each month you make a payment to your lender which consists of both a repayment of part of the Finance and a payment of the interest on your Finance.
You are reducing your debt every month, and as a safeguard you will need to arrange life assurance or ASU, which is often a compulsory requirement with mortgage lenders so that should you die before the end of the term your mortgage will be paid for. Deciding which mortgage is best for you depends on a few factors, which is why it’s important for you to do your financial homework first.
Repayment mortgages are regarded as the safest option, hence their appeal to the more cautious investor. They are certainly much easier to understand and you should have no trouble working out your monthly incomings and outgoings. As time goes on, the equity % in the property increases. However, in the early years of the repayment mortgage the bulk of the mortgage repayments consist of the interest component, so not alot of the capital is actually paid off for some time. Here at a mortgage 4 you we can help you apply for a repayment mortgage, even if you have bad credit or other circumstances against your name.
The overall cost for comparison is 5% APR. The actual rate available will depend on your circumstances. Ask for a personalised illustration.