There are many different options for repaying your mortgage and the very best for ensuring that you own your home outright at the end of the repayment terms is to take a full repayment mortgage. Using a repayment mortgage calculator you can see exactly how much you are able to borrow, how much you will be paying back every month, and for how long. But what do these costs really factor in and how does a repayment mortgage work?
Take a look at any good mortgage calculator UK and compare a repayment mortgage against a buy to let mortgage calculator or an interest only mortgage calculator and you will see a difference in the amounts you will be paying back and the length you will need your repayment term to be to pay off the full amount. Rates tend to be higher on buy to let mortgages, while repayments are much lower on interest only mortgages – although these do tend to cost you more in the long run as you will still need to pay off the full mortgage.
With a repayment mortgage, every payment you make back into your mortgage reduces not only the interest but also the capital investment sum, meaning the interest decreases over time and you pay off the full mortgage. This means that by the end of the repayment term (generally 25 years but it can be as long or short as you like – within reason), you have paid off the full amount owed to the lender and own your house outright.
You will find that for the first few years you will only be paying off the interest accrued on the mortgage which can be frustrating – as you are paying more than an interest only mortgage and still not paying off the full loan – but in the end you will find that you have paid off the loan in full, making the initial frustration worthwhile.
Monthly payments will start to reduce after the first few years, because as soon as you start making a dent in the actual loan your interest will reduce as well, making the amount owed less and less. This is not the case with interest only mortgages as the interest in calculated on the full loan sum, instead of being calculated anew each time you pay off some of the loan. For this reason a repayment mortgage does work out cheaper for you – if you can swallow the higher monthly payments at first.
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