The numerous developments in the world of mortgages have seen almost all kinds of people taking a mortgage. This essentially means that if you have a decent job and a passable credit history, you can get a mortgage. The interest rates and payment options may vary from one mortgage to another. Many people prefer to go for the tried and tested options available in the mortgage market, one of them being capital and repayment mortgages. This is one of the most traditional types of mortgages and is completely old fashioned. However, many borrowers believe that this is the only mortgage that, in effect, guarantees that the property will be yours, if you have made the repayment of the loan, at the end of the set term of mortgage.
In capital and repayment mortgages, a borrower has to make regular payments to repay the amount of loan and the interest incurred. These part payments are usually done on a monthly basis. This means that the mortgage debt of a person is divided into two categories:
In the initial stages of capital and repayment mortgages, large portions of the payments made are used to pay off the interest as earlier on, the capital is of a high value. Therefore, in the first few years, a person might not see a substantial reduction in the capital. But, over the years, as more and more monthly repayments are made, the capital sees a significant reduction. This is because, as the years go by a large part of the payments are used to pay off the capital. This leads to a situation such that when the term is about to expire a persons’ repayment amount will go largely towards paying off of capital and a very limited amount will be attributed to paying the interest. This might look to be a costly proposition, as compared to other loans. But, in this case you will be paying both the interest and the capital and not one or the other.
Capital and repayment mortgages are affected by the fluctuations of the market. If there is a rise in the interest rates then a person’s monthly payment will also see an increase. In the event of such an occurrence, a person has the option to increase the length of the term, so that the monthly repayments do not change. Sometimes, the interest rates see a fall. In this case, the person can decrease the term of the loan or has the option of paying lower payments. Money lending organizations or building societies usually asks the borrower to take out a life insurance so that the repayment of the loan takes place even if he/she dies during the term.