The most common type of repayment vehicle is a capital and interest (or repayment) mortgage; whereas under this arrangement, the borrower makes a single payment to the lender each month consisting of:
Interest-charged on the outstanding capital. The interest repaid starts at a relatively high level and reduces year by year;
Capital– initially this makes up a very small amount of the monthly payment but over time, the capital element makes up a greater proportion of the payment.
The main advantage of this mortgage repayment vehicle is the outstanding debt is guaranteed to be paid off providing the monthly payments have been paid throughout the term.
On application, applicants are able to opt either a capital and interest mortgage or another type (see interest only); however many applicants choose a capital and interest mortgage; as it’s the more popular and suitable. Mortgage advisors would prefer to see applicants on this type of repayment (capital and interest mortgage) where the outstanding mortgage loan amount is guaranteed to be cleared at the end of the term.
As from 2014, regulations have tightened regarding interest only mortgages and most applicants will have to opt for a Repayment mortgage for a residential purchase
If you require advice on capital and interest mortgages or looking to switch to a repayment mortgage, please speak to one of our experienced mortgage advisers. The repayment vehicle is fundamental to the mortgage plan.