Currently, most mortgages being offered are what’s called ‘repayment mortgages’. This is where you pay back capital and interest at the same time. Find out more about what this means.
What’s in this guide
What are capital and interest?
A mortgage has two parts:
- Capital: the money you borrow.
- Interest: the charge made by the lender on the amount you owe.
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Capital and repayment mortgage
A capital and repayment mortgage is the most common type of mortgage being offered at the moment. With this type of mortgage, you’ll make monthly repayments for an agreed period of time (known as the ‘term’) until you’ve paid back both the capital and the interest.
This means that the amount you owe will get smaller every month and, as long as you keep up the repayments, your mortgage will be repaid at the end of the term. The term is usually 25 years.
You must also then decide the type of interest rate you want on your repayment mortgage. You can choose to have the interest rate fixed over time, or variable – which means the interest rate can go up or down.
Find out more about the Different mortgage interest rate options
Interest-only mortgage
Another type of mortgage is an interest-only mortgage. With this type you only pay the interest due on the amount you borrowed each month, and repay the capital at the end of the mortgage term.
However, very few interest-only mortgages are now offered. If they are, it’s usually in special circumstances such as buy-to-let or if you’re applying for a mortgage in later life.
This is because many people who were offered interest-only mortgages in the past had no means of paying back the capital at the end of the term.
If you have an interest-only mortgage and can’t repay the capital, contact your lender as soon as possible to discuss your options. The sooner you do this before your mortgage comes to an end the better.
