A Capital and Interest Mortgage is a mortgage product whereby the monthly repayments pay off both the money borrowed and the interest accrued on it. This is one of the most usual types of mortgage. The monthly repayment made by the borrower includes a repayment of capital borrowed and an amount for the interest charged. At the beginning of the mortgage most of the payment is used to cover the interest and only a small amount is paid towards reducing the mortgage. Over the term of the mortgage more and more of the monthly payment is comprised of paying back the capital borrowed. As long as the monthly payments of repayments are always made on time the mortgage is guaranteed to be paid off at the end of the term.
Repayment mortgage is the kind of mortgage, where principal and interest is paid monthly, until the loan is repaid. It is also known as ‘annuity repayment method’ and ‘capital and interest mortgage’. In this type of mortgage the mortgage debt is divided into the following:-
1. Principal repayments- repayment of money borrowed.
2. Interest repayments- repayment of the interest charged for a loan.
Advantages of Capital and Interest Mortgage are as following:-
1. There is a guaranteed repayment of loan at the end of period.
2. More and more capital is repaid as the period advances.
3. There is a gradual reduction in the overall mortgage debt.
1. There is no surplus cash at the end of the term.
2. Separate life assurance is required to cover the loan.
3. The term of the loan may be changed at the choice of the lender.