Looking for a mortgage deal can be overwhelming; there’s so much to consider. However, most mortgage providers will offer a capital and repayment mortgage to the majority of borrowers. This kind of mortgage dictates that you need to make monthly repayments that go toward both the principal and accrued interest.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
With this kind of mortgage deal, most of the payment covers the interest at the beginning, and as time goes on and the interest is paid down, more money will go toward paying down the initial amount you borrowed, finally reducing your overall mortgage amount.
Front-loaded interest, quicker to pay down
With a capital and repayment mortgage, as time goes on, your payments will start making a dent in your principal, but the interest is front-loaded, which means the bulk of your repayments will go toward paying that down first. Your monthly repayment, assuming you’re on a fixed-rate deal, will stay the same, it’s just the split will cover the different portions differently over the course of the term. Once you get to that point, your overall debt will start to reduce more quickly.
Typically, these mortgages benefit from lower interest rates, compared to other kinds. Another bonus is that negative equity is less likely to occur with this kind of mortgage because you’re actively chipping away at your mortgage balance each month. You might run into trouble if the market is experiencing a particularly volatile time, but as long as the value of your home doesn’t shift too dramatically, you’ll gain equity with each repayment.
This also means that this kind of mortgage is a great way to ensure your mortgage is paid by the end of the term.
For the vast majority of borrowers, a capital and repayment mortgage is the best choice, so if you’re approaching the end of an initial period on any other kind of mortgage, take advantage of the opportunity to search for a new deal. This could impact your financial situation, either negatively if you have to pay fees or positively because you could end up saving thousands, so it’s crucial that you understand your options and if you’re at a loss, seek professional mortgage advice.
Worried about getting a mortgage you know you’ll be able to pay off?
Figuring out the right kind of mortgage for you can be hard and if you get it wrong, you could end up paying the price. Dental & Medical Financial Services can help you find the best deal for you, so if you need help making the right decision, get in touch with us today.