Your home may be repossessed if you do not keep up repayments on your mortgage.

What are capital and interest mortgages?

Also known as a Repayment Mortgage, this is the most popular and the lowest risk mortgage, and is normally the simplest. Your monthly payment consists of two parts – ‘Capital’ and ‘Interest’.

As with every mortgage or loan, and indeed the ‘Interest Only’ mortgage above, you are charged interest on the amount you have borrowed every month. This is the ‘Interest’ part of the mortgage.

In addition to this, the lender calculates the amount you need to pay in order to repay the ‘Capital’ part of your mortgage over the selected term. This can be seen in the diagram below.

Please note the graph below is for illustrative purposes only.

In the early years, the amount of ‘Interest’ you pay each month is likely to be greater than the amount of ‘Capital’ repaid each month. This is because interest is charged on a higher mortgage balance than in the latter years.

However, in the latter years, when your mortgage balance has reduced, you will be paying interest on a smaller mortgage and so most of your monthly payment will be repaying the ‘Capital’ – thus reducing the mortgage quicker.

Again as with the ‘Interest Only’ mortgage, the mortgage payment is not the only expense you will need to consider. In addition, you should also consider Buildings and Contents insurance; Life cover and Critical Illness Cover; Mortgage Payment Protection and Redundancy Cover.

For friendly, plain speaking advice contact one of our expert mortgage advisers today on 01271 346123.

Payment Protection Insurance is optional. There are other providers of Payment Protection Insurance and other products designed to protect you against the loss of income. For impartial information about insurance, please visit the website at www.moneyadviceservice.org.uk

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