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Capital Repayment...

The most popular and the traditional type of mortgages, the capital repayment mortgage is normally also the most simplest.

Essentially as with every mortgage or loan, every month you are charged interest. On the basis that there are twelve months in a year interest charged is approximately equivalent to 1/12 of the rate your lender is charging you per annum.

In addition to this cost you also have to pay an amount that over the term of your debt will repay it in full. This can be seen in the diagram below.

Please note the graph below is not accurate and is for illustrative purposes only.

So in the early years your monthly payment to your mortgage company is made up of interest and a bit of capital however as the years roll by and the debt reduces your overall payment is more made up of capital than interest this is due to the fact that the amount of interest charged reduces as the debt declines due to repayment.

All this considered, your mortgage payments are not necessarily the only expense to you as you should also consider taking out buildings and contents insurance and life cover.

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