“Repayment mortgage (also called a capital-and interest loan)
Your monthly payments gradually pay off the amount you owe as well as paying the interest charged on the loan. Provided you make all the agreed payments, the loan will be fully paid off by the end of the mortgage term.”
-Consumer Information, FSA, June 2006
Repayment mortgage and capital mortgage (or capital loan) are the exact same thing, made more confusing by the fact that this type of mortgage is known by more than one name. But don’t let that confuse you! Capital and repayment mortgage is, in fact, the same thing.
How Do I Know Capital, or Repayment, Mortgage Is Right For Me?
Repayment/Capital mortgage is great for those who want to get their entire mortgage, capital and interest, paid off by the end of their mortgage term. Once the term is up on this type of mortgage, you’re done and fully paid off. Many mortgage policies focus on the interest that you owe. Capital and repayment mortgages are popular because they allow homeowners to pay off everything that they owe.
The bank or company that you work with to determine your mortgage policy and payments can give you all sorts of options. Make sure to ask what the interest rate and payment structure on a Capital or repayment mortgage would be. The numbers will help you decide what’s right for you. After all, the right mortgage is the one that you can afford.
Do Capital and Repayment Mortgages Cost More Than Other Types of Mortgages?
“You usually pay off mostly interest in the early years and then gradually more of the capital debt. It may seem as if this is costing more but that's because unlike the other types of mortgages you're paying off the capital and not just the interest.”
-Repayment Mortgages, Mortgage Sorter web site, June 2006
While capital and repayment mortgages do not necessarily cost more than other types of mortgages, you may feel that you are paying out for a longer period of time with a capital and repayment mortgage. This is not true, however. Capital and repayment mortgages just allow you to pay off your entire mortgage in one complete payment cycle. And once you’re done, you’re done. That’s the beauty of a capital and repayment mortgage, one of the most popular types of mortgages used by homeowners.
I Still Don’t Know What Kind of Mortgage I Need. What Should I Do?
If you know that you want to finance or re-finance your home or property, it’s an easy decision to take out a mortgage policy. The only problem is, what kind of mortgage will suit your needs best? With so many options out there, and so much information about different types of mortgages available, it can make your head swim. When you’ve never had a mortgage before and don’t know that much about mortgages in general, how do you decide what’s best for you?
The only way to know what type of mortgage will fit your needs is to run the numbers. Have your bank, financial advisor, or the company that you’re re-financing with gives you examples of payment plans for many types of mortgages, and be sure to get your questions answered about each policy. You will think up many different questions, some of which can only be answered by those you’re working with to establish your mortgage. You’ll know what’s right for you when you see the plan in black and white, because you’re the only one who truly understands what your financial situation is.
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