How Repayment Mortgages Work
With a repayment mortgage (also called capital and interest), each monthly payment covers both interest on the loan and a portion of the capital (the amount borrowed). Over your mortgage term, you gradually pay off the entire debt, meaning you own your home outright at the end with nothing left to pay.
Early payments are mostly interest, with a small capital element. As you progress through the term and the balance reduces, more of each payment goes toward capital. By the end, you're mainly paying off capital with minimal interest.
Benefits of Repayment Mortgages
The main advantage is security - you're guaranteed to pay off your mortgage if you maintain payments throughout the term. There's no need to worry about repayment vehicles or accumulating separate funds to clear the debt. Your equity in the property grows with each payment.
Repayment mortgages also build equity faster, which can be beneficial if you want to remortgage to release funds later or move to a better LTV band for your next deal.
Monthly Payment Comparison
Repayment mortgages have higher monthly payments than interest only because you're paying capital as well as interest. On a £200,000 mortgage at 4% over 25 years, repayment costs approximately £1,055 per month versus £667 for interest only - nearly £400 more.
However, at the end of 25 years, you owe nothing with repayment versus still owing £200,000 with interest only. The total cost comparison depends on what you'd do with the monthly savings from interest only and whether your repayment vehicle performs as expected.
Choosing Repayment
Repayment is the most common and generally recommended mortgage type for most borrowers. It provides certainty that you'll own your home outright and eliminates the risk of reaching term end with outstanding debt. Most lenders prefer repayment mortgages and may offer better rates than interest only.
Our brokers can compare repayment mortgage deals across the market, finding competitive rates that fit your budget and circumstances.