Our Guide To Repayment Mortgages

Len Burgess 02 Jul 2020

Your mortgage will almost certainly be the biggest debt you’ll ever have. A repayment mortgage is one form of mortgage that will clear your debt as you go along. Most people will have a repayment mortgage.

A mortgage, simply, is a large secured loan that you’ll use to buy your own home. You’ll typically pay a deposit for your property, whilst the other costs are covered by your mortgage. Then, over time, you’ll make payments to clear your mortgage debt.

What Is a Repayment Mortgage?

A repayment mortgage is a mortgage where your monthly repayments pay off the interest and some of the outstanding debt. Once the mortgage term is complete, you owe no money on your home.

Mortgages can be debts of six figures or more, with strict penalties for missing repayments, so it’s easy to see how this could become the most important move you ever make. The type of mortgage you have will determine how you manage your mortgage debt.

Most people have a repayment mortgage, where every month they’ll pay off some capital as well as the interest on their loan.

Read on to learn more in our guide to repayment mortgages.

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What Is A Repayment Mortgage?

A repayment mortgage is one type of mortgage that you can use to buy your own home. Most people go down this route, making the repayment mortgage the most common type on the market.

With a repayment mortgage, your payments every month will cover the interest that you owe. They’ll also clear some of your mortgage capital, reducing your overall debt.

The alternative is an interest-only mortgage, where your monthly payments don’t cover any capital, and you need to pay this back separately.

A repayment mortgage has higher monthly costs than an interest-only mortgage, though you’ll be safe in the knowledge that your monthly payment covers all the costs of your debt. When your mortgage term ends, you’ll own your home and can continue living in it debt-free.

How Your Repayments Progress

When you start making mortgage repayments, you’ll owe the full value of your home, and your interest payments will be at their highest. During this stage of repayment, your monthly figure is mostly used to clear that month’s interest. At first, clearing capital is a slow process with very small amounts of debt chipped away.

Over time, gradually, the balance of your mortgage will shift. As your outstanding capital slowly goes down, so will the interest that you’re charged. Paying the same amount each month, less of your money will be needed for interest and more can go on repaying capital. Towards the end of your loan term, most of your money will be used to clear outstanding capital.

You shouldn’t notice much of a difference each month. You’ll make your repayments in the same way, regardless of how that money’s split. As long as you keep up with your mortgage repayments, your debt will disappear by the end of your mortgage term. That said, it’s important to know how your repayments will progress – seeing outstanding capital go down so slowly at first can feel a little disheartening.

Remember that, over time, your debt will start to disappear more quickly. It might feel at first that you’re not touching your capital, but the scales will soon start to tip.

Example Of Mortgage Debt

The following shows the progression of a 25-year mortgage, with £130,000 borrowed at an interest rate of 3.5%. You can see the difference between the average debt paid vs interest paid across that year, and also how the average gradually shifts over the course of the full mortgage term.

Time elapsed	Monthly repayments	Monthly debt paid (this year average)	Monthly debt paid (full term average)	Monthly interest paid (this year average)	Monthly interest paid (full term average)	Outstanding debt
After year 1	£651	£275.92	£275.92	£375.08	£375.08	£126,689
After year 2	£651	£317.42	£296.28	£333.58	£354.72	£112,223
After year 10	£651	£378	£324.59	£273	£326.41	£91,049
After 15 years	£651	£450.25	£356.51	£200.75	£294.49	£65,828
After 20 years	£651	£536.33	£392.56	£114.67	£258.44	£35,786
After 25 years	£651	£639	£433.33	£12	£217.67	£0

Numbers compiled by Money Savings Advice

Who Is A Repayment Mortgage For?

Most people will choose a repayment mortgage. These are the most common mortgage products.

If you plan to live in the home you’re buying; you’ll need a repayment mortgage. The alternatives, interest-only mortgages, are typically only suitable for buy-to-let investors.

With a repayment mortgage, you’ll have a guaranteed way to clear your mortgage debt. Repayment mortgages are easier and safer, with fewer risks involved if you keep your monthly repayments on track.

Keeping Repayments On Track

A mortgage is secured against your home, so keeping up with mortgage repayment is very important.

Keeping your mortgage repayments on track is absolutely essential. Missing payments doesn’t just damage your credit file, but could also lead to you losing your home since your mortgage is secured against your property. If you don’t keep making mortgage payments on time, the lender could repossess your house.

It’s important to make sure that you can afford the mortgage repayments you’re agreeing to. Everyone wants the best possible home, but stretching too far could cause huge problems in future. It’s better to choose a mortgage you can comfortably afford, to avoid getting into financial problems further down the line.

Of course, we can’t all predict the future. Things can happen, and circumstances change, especially over several decades. Mortgage debts last a long time, and you might find that repaying your debt is more difficult at some points than others.

Mortgage Repayment Terms

Typically, a person or couple will repay their mortgage debt over roughly 25 years. That’s a quarter of a century in mortgage debt, through all the ups and downs that people typically ride out.

Whilst you’re managing your mortgage debt, you may have a few kids, could change jobs several times and might suffer through illness and bereavement. Circumstances don’t stay the same for too long, but your mortgage debt will stick to you like glue.

Mortgage lenders can’t be too forgiving. They’re dealing, like you, with enormous levels of debt. If lenders let people fall behind on occasion, they’ll lose a lot of money quite quickly. Lenders are likely to take action almost instantly if you can’t keep up with repayments. This doesn’t mean that you’ll lose your home straight away but does mean that you should quickly work to negotiate alternatives.

If you can get to the end of your repayment mortgage having made your payments every month, you’ll now own the property in full and have no outstanding mortgage debt.

Struggling With Mortgage Repayments

Everyone’s circumstances change. With a repayment mortgage that’s secured against your home, it’s very important to react to those changes straight away. If you notice that you’re struggling to keep up with repayments, speak to your lender and see what alternatives they’ll offer.

Lenders may be able to provide a payment holiday to help you get back on track financially. Your lender might suggest moving, temporarily, onto an interest-only mortgage. Interest-only mortgages have lower monthly payments but won’t chip away at your capital.

You might alternatively like to extend your mortgage term, so you’ll pay less each month but be in debt for longer than you’d planned to be.

Finding A Repayment Mortgage

With most people choosing a repayment mortgage, they’re not very difficult to find. Getting approved for a mortgage is a different matter entirely. Improve your chances of mortgage approval by contributing a larger deposit, taking out the smallest mortgage possible.

Make sure that any repayment mortgage is affordable in your situation. Consider insuring your income, to help protect your property and keep making mortgage payments even if you can’t do your job. Stretching your budget too far can lead to more trouble down the line.

How Can Money Savings Advice Help You With A Mortgage?

Here at Money Savings Advice, we have partnered with some of the UK’s leading mortgage brokers. They have already helped thousands of people get the best mortgage deal and they can do the same for you.

Choosing an independent adviser means they won’t recommend a mortgage unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

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Len Burgess

Len Burgess is a professional financial writer who over the last five years has written hundreds of articles for all financial sectors. Len founded Money Savings Advice with the aim of helping consumers navigate their way around the financial world by providing easy to understand financial information and matching consumers with the best financial advisor based on their personal information.