## Mortgage Repayment

If you are considering buying a new house, or remortgaging your existing house, you will learn that there are a number of things that can affect how you **repay your mortgage**. The amount you borrow, of course, and the interest rate that the lender changes you, will both affect how much you have to pay each month. However, you can also affect the amount you repay by changing the **repayment term** - the length of time you take to repay the loan. There are also two main types of mortgage - capital repayment, where you repay the loan as well as the interest each month, and interest only, where each month you pay the lender only the value of the interest on your outstanding debt. Use our mortgage repayment tool to see how your monthly payments might change:

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### How the mortgage repayment is calculated

The **mortgage repayment tool** provides an estimate of the monthly payments and total amount repaid based on the information that you enter. In this tool, interest is calculated monthly, but lenders may assess interest more frequently, which will lead to different figures. Also, be aware that lenders may have additional fees which are added to the cost of the mortgage - for example, a product fee or application fee applied at the start of the loan (often added to the mortgage) or a fee on completion. Such fees are not included in the figures provided by this tool.

Enter the amount you would like to borrow into the "Mortgage Amount" field. Remember that most lenders will not allow you to borrow the whole cost of your house - they normally ask you to have a deposit, typically 10% or more of the value of the house. By default, our tool applies an interest rate of 5%, but the rate charged will actually vary fron lender to lender, and will often depend on how much you want to borrow and the size of the deposit you have. Change this rate to see what effect a change of interest rate would have on your monthly repayments. Typically, mortgages have a repayment term of 25 years. If you are able to shorten this term, your monthly repayments will be higher but the total amount repaid will be lower (unless your lender charges a fee for early repayment).

### Capital Repayment vs. Interest Only

There are two main types of mortgage - **Capital Repayment** and **Interest Only**. Within these two types, there are often other sub-types of mortgage, like fixed-rate, variable rate, tracker and so on. These different sub-types describe how the interest is calculated on your loan, but the different between capital repayment and interest only is more fundamental than that.

In a **capital repayment mortgage**, the lender charges you interest on the amount outstanding but you pay back more than that each month, so that the amount you owe is less each month. This means that your loan attracts less interest (since the outstanding amount is less each month), so you start to repay the loan quicker. At the start of the term, most of your monthly payment will be covering the interest you are being charged, but at the end of the term your payments will be mostly paying off the debt, with only a small amount of interest being charged each month. Your lender will calculate the correct monthly payment for you to pay off the whole loan at the end of the term.

With **interest only mortgages**, as the name suggests, you only pay the lender the interest on the loan amount each month - the amount you owe will remain the same for the term of the loan. At the end of the term, you will be required to repay in full the whole value of the loan. As you will see if you choose this option in the tool above, the amount you pay each month is noticeably lower than with a capital repayment mortgage. However, you will need to save or invest some extra money each month, otherwise you won't be able to make the lump-sum repayment of the loan at the end of the term. Also, you will see that the total amount repayable on an interest only mortgage is significantly more than the total on a capital repayment mortgage. This is because, on an interest only mortgage, you are being charged interest on the whole loan amount every month until the end of the term - with a capital repayment mortgage the outstanding loan amount reduces each month, so you are charged less interest in total.