A repayment mortgage is a term generally used in the UK to describe a

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any p ...

in which the monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest, so that the amount borrowed decreases throughout the term and by the end of the loan term has been fully repaid. This contrasts with an interest-only mortgage (such as an

endowment mortgage An endowment mortgage is a mortgage loan arranged on an interest-only basis where the capital is intended to be repaid by one or more (usually Low-Cost) endowment policies. The phrase "endowment mortgage" is used mainly in the United Kingdom by le ...

or some types of balloon payment mortgage) where monthly repayments are for interest, and the borrower must repay the full loan at term in a lump sum. One advantage of a repayment mortgage is that it removes the risk of having an investment (as exists in an

), the performance of which is dependent on the stockmarket. The borrower is also less likely to suffer from negative equity because the mortgage balance will be reducing month on month. As time moves on, the equity percentage in the property increases. However, in the early years the bulk of the mortgage repayments consist of the interest component, so not much of the capital is actually paid off for some time.

References

Mortgage {{finance-stub

See also

References