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Repayment Mortgages.
A loan is made for a fixed term say 25 years and the borrower makes repayments on a monthly basis. Each monthly payment is made up of capital and interest.
At the start, each monthly payment consists of more interest and the capital reduces slowly.
If there are changes in the interest rate the monthly payments will be increased or reduced to pay this.
If, say interest rates fall, you can keep the monthly payments unchanged and redeem the mortgage quicker.
Repayment Mortgage Key points.
A repayment mortgage guarantees that the mortgage will be repaid at the end of the term as long as payments are fully
maintained. The arrangement is flexible and can easily be rearranged to reduce payments in times of financial hardship.
Unlike an endowment mortgage, there is no possibility of an additional cash sum being available when the mortgage is
repaid.
As only interest is repaid in the early years, if you move
frequently but keep the mortgage term at 25 years each time, you
can find yourself with a constant 25 year mortgage which may not
be paid off until retirement age, whereas an interest only
mortgage may have been paid off sooner.
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