Updated: 03/11/2024
Why Take Out a Repayment Mortgage in the UK?
There are a number of reasons why you might choose to take out a Repayment Mortgage in the UK. They can be a good option for many homeowners, but this mortgage product may not be right for everyone.
What is a Repayment Mortgage?
A Repayment Mortgage (also known as a capital repayment mortgage) is where you repay the capital that was lent to you and the interest accrued in a series of monthly payments over an agreed term.
1. You Will Pay Less Interest
A Repayment Mortgage is, without doubt, one of the most popular types of mortgage presently available in the UK.
Mortgage Repayment Methods
These mortgages allow you to repay the capital amount borrowed, plus the interest accrued over a fixed period of time, usually up to 25 years.
This means that the amount of capital that you owe will decrease each month and that you will have fully repaid the loan by the end of the term. There are a number of different repayment mortgages that you can take out, and each type has its own advantages and disadvantages.
Advantages of a Repayment Mortgage
The first advantage of a Repayment Mortgage is that it’s likely to be more affordable than an interest-only mortgage. This is because you are only paying the interest charged on the capital you borrowed, so the monthly repayments are typically much smaller.
Another advantage of a Repayment Mortgage is that it allows you to have a fixed interest rate, which means that the amount you pay each month will remain stable throughout the loan term.
This can be beneficial for those who want to know exactly what they’ll be paying each month, without being affected by changing interest rates in the UK.
As a result, many people choose to take out a Fixed-Rate Mortgage when they buy a property in the UK. In addition, the government has introduced a number of initiatives to make buying a home more affordable in some areas of the country, such as Help to Buy and Shared Ownership.
These initiatives can be particularly helpful if you are a first-time buyer or find it difficult to save a deposit. However, it is important to remember that these schemes only apply to properties in a certain location, and they are not available in every area of the country.
A Repayment Mortgage is also less risky than interest-only mortgages, as you have more of a chance of paying off the loan before the end of its term. This can make them an excellent option for those who want to have peace of mind that they will own their property outright by the end of it.
2. You Will Pay Off Your Mortgage Sooner
A Repayment Mortgage in the UK is a great way to own your own home. Most mortgages are a bit like credit cards, where you make monthly payments until your loan is paid off in full.
Repayment Mortgage Rates
In the early years of a Repayment Mortgage, most of your payments go to paying off interest. But over time, the capital you owe on your mortgage reduces, so the percentage of each payment that is going to pay off the principal – or more correctly, a repayment – increases.
As a result, you will pay less interest on your mortgage over the life of your mortgage and be able to repay it far more quickly than you might have imagined. Obviously, a great deal depends on the Interest Rates at the time (Information available from published The Bank of England Interest Rates), and your payments can go both up and down.
The best part is that you can choose from a wide range of mortgage products including repayment and interest-only options, with many lenders offering more than one type of mortgage.
3. You Will Be Able to Afford a Larger Deposit
A Repayment Mortgage is the most popular type of home loan in the UK. With a Repayment Mortgage, you repay the capital and interest on your loan over a set period of time – which usually lasts for around 25 years.
The amount you owe on your mortgage will gradually get smaller as you make your repayments, meaning you’ll be able to repay your whole loan by the end of the term.
However, you’ll have to consider your own circumstances and how much you can afford to borrow when it comes to a repayment mortgage. As well as the size of your deposit, you should also take into account any other costs – like stamp duty and legal fees – that could be involved in buying your new home. It’s also worth cutting back on other expenses to help you save up for a bigger deposit.
This can include reducing your rent, moving into a houseshare, or staying with family until you have saved up enough money. Taking these steps will help you save for your dream home sooner.
4. You Will Be Able to Save More Money
A Repayment Mortgage is the traditional type of home loan taken out by most residential borrowers, and one of the best things about this mortgage product is that you can often save quite a bit of money by making fewer payments each month than with an Interest-Only Mortgage.
This is because you’ll pay less in interest each year, as the interest rate on a repayment mortgage is calculated at a percentage of the outstanding balance. You can also overpay your mortgage by a certain amount each year, which will help you to get a lower rate of interest and save even more money in the long run.
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