A repayment mortgage is a mortgage in which the borrower’s payments are applied both to the capital borrowed as well as the interest accrued, allowing for the entire loan amount to be repaid by the end of the loan term. This is in contrast to endowment mortgages, in which any payments made by the borrower are applied to the interest on the loan and balloon payment mortgages, in which the entire loan amount is not repaid throughout the term, leaving a balance due at maturity. There are many advantages to having a repayment mortgage, including the following:
* The mortgage will be paid in full at the end of the term This means that, at the end of the term, the property transfers to the individual with no additional costs, unlike a balloon payment mortgage.
* As the loan matures, the property begins to build equity which can be used to borrow more money if necessary.
Keeping this in mind, another major advantage of a repayment mortgage is that changes in the terms can be modified simply by calling the lender. If the individual circumstances improve for the borrowers, the loan can often be repaid ahead of schedule. Typically, any payment made in addition to the minimum will be applied directly toward the capital. This is a very financially intelligent technique if finances allow because the less capital is owed, the less interest will be charged.
In these tough economic times, it is important to make the best decisions possible when securing a mortgage. Whether one decides to take a repayment mortgage, a balloon payment mortgage, or an endowment mortgage, the decision should be based on the individuals personal circumstances.
It can be said, however, that the most logical choice for most is the repayment mortgage. This type of mortgage is also a very wise choice for anyone buying a house that they will own the rest of their lives. With a repayment mortgage, the individual pays a specific amount every month, or in some cases a smaller amount twice a month, and the home is completely owned at the end of the term. No more payments, no more fees just a place to call home.