What is a Capital Repayment Mortgage?
A capital repayment mortgage is a popular type of mortgage in the UK, which involves paying off both the interest and the principal amount borrowed over the life of the mortgage. This means that by the end of the mortgage term, the borrower will have paid off the entire amount borrowed plus the interest charged.
Let’s look at the structure of a capital repayment mortgage, its popularity, and who offers it in the UK as well as the types of repayment mortgages. We will also look at the lender's requirements to secure this type of mortgage.
What is a Capital Repayment Mortgage?
A capital repayment mortgage is a type of mortgage in which the borrower pays both the interest and principal amount borrowed over the life of the mortgage. This means that each monthly payment made by the borrower includes a portion of the principal and the interest charged by the lender. As the borrower makes these payments over the term of the mortgage, the amount of principal owed decreases, and the equity in the property increases.
A capital repayment mortgage is structured to ensure that the borrower repays the entire amount borrowed by the end of the mortgage term, which is usually around 25 years. This is achieved by calculating the monthly payments required to pay off both the principal and interest over the term of the mortgage. The monthly payments are usually fixed for the duration of the mortgage term, making it easier for borrowers to budget and plan their finances.
Capital repayment mortgages are a popular choice for many borrowers in the UK. This is because they offer a clear and straightforward way to pay off the mortgage over time. Unlike interest-only mortgages, where the borrower only pays the interest and not the principal amount, capital repayment mortgages ensure that the borrower owns the property outright at the end of the mortgage term.
Many lenders in the UK offer capital repayment mortgages. These include high street banks, building societies, and specialist mortgage lenders. When choosing a lender, borrowers should compare the interest rates and fees charged to ensure they get the best deal possible.
In some circumstances, borrowers may need to use a specialist mortgage lender to secure a capital repayment mortgage. For example, if they have a poor credit history, are self-employed or have a non-standard income, they may find it difficult to secure a mortgage from a high street bank or building society. Specialist mortgage lenders may be able to offer more flexible lending criteria and a better chance of approval in these situations.
Using a mortgage broker can also be useful when searching for a capital repayment mortgage. A broker can compare mortgage deals from a range of lenders, including specialist lenders, and help borrowers find the best deal for their circumstances. They can also provide advice on the different types of mortgages available and the pros and cons of each.
Fixed-Rate Mortgages
A fixed-rate mortgage is a type of mortgage where the interest rate is fixed for a certain period, usually between 2-10 years.
Tracker Mortgages
A tracker mortgage is a type of mortgage where the interest rate tracks the Bank of England's base rate, plus a set percentage.
Discount Mortgages
A discount mortgage is a type of mortgage where the lender offers a discount on their standard variable rate for a certain period.
Standard Variable Rate Mortgages
An SVR (Standard Variable Rate) mortgage is a type of mortgage where the interest rate can go up or down at any time, at the lender's discretion.
Offset Mortgages
An offset mortgage is a type of mortgage where the borrower's savings are offset against their mortgage debt.
Guarantor Mortgages
A guarantor mortgage is a type of mortgage where a family member or friend agrees to guarantee the mortgage payments if the borrower is unable to make them.
For a more thorough explanation of these type of mortgages check out our First-Time Buyer Mortgages Guide 2023.
To secure a capital repayment mortgage, lenders have certain requirements that borrowers must meet. These requirements are in place to ensure that the borrower can afford to make the mortgage payments and to minimise the risk of default.
Credit History
Lenders will usually require borrowers to have a good credit history. This means that they have a history of making payments on time and do not have a high level of debt. Lenders will typically check the borrower's credit score and credit report to assess their creditworthiness.
Income and Employment
Lenders will require proof of income and employment to ensure that the borrower can afford the mortgage payments. This usually involves providing payslips or tax returns. Lenders will typically ask for at least three months of payslips to verify the borrower's income.
Deposit
Lenders will require a deposit of at least 5% of the purchase price to secure a capital repayment mortgage. This means that the borrower must have savings or access to funds to cover this cost. The larger the deposit, the more attractive the mortgage rates offered by lenders can be.
Affordability Checks
Lenders are required by law to carry out affordability checks to ensure that the borrower can afford the mortgage payments. This involves looking at the borrower's income and outgoings to assess whether they can afford the mortgage payments now and in the future.
Age and Repayment Term
Lenders may also take into account the borrower's age when assessing their mortgage application. For example, if the borrower is close to retirement age, the lender may limit the term of the mortgage to ensure that the borrower can afford to make the payments in retirement.
When to Consider Selling to Gaffsy, a Cash House Buyer
If you are unable to secure a capital repayment mortgage or are struggling to keep up with your mortgage payments, selling your property to a cash house buyer like Gaffsy may be a good option. Gaffsy is a reputable cash house buyer with considerable knowledge and experience of buying properties throughout the UK.
Cash house buyers offer a quick and stress-free way to sell your property, without the need for estate agents or property chains. This can be particularly beneficial if you need to sell your property quickly or are facing repossession. No matter the condition of your house or the condition of your flat Gaffsy can guarantee you a sale with zero fees in a timeframe that suits you. Get in touch with Gaffsy today for your free cash offer.
Conclusion
A capital repayment mortgage is a popular type of mortgage in the UK, offering a straightforward way to pay off the mortgage over time. Lenders usually require borrowers to have a good credit history, stable income, and a deposit of at least 5% of the property value to secure a capital repayment mortgage. However, if you are unable to secure this type of mortgage, selling to a cash house buyer like Gaffsy can be a viable option.
