Repayment Mortgages

How they work Your monthly payments are part repayment of the amount you've borrowed (the capital) and part interest. In the early years, most of the payment is interest. In later years more of your money goes towards paying off the capital.

There are two types of repayment mortgage depending on how the tax relief is worked out. With a 'level repayment' mortgage, your payments (after tax relief) stay the same throughout the mortgage except when interest rates or the basic tax rate changes. An 'increasing repayment' mortgage is harder to find; with this, your repayments are lower in the early years, but rise every year.

Points to note If you have dependants, you'll need a 'mortgage protection policy'. This is a type of life insurance which will pay off the mortgage if you die during the mortgage term.

Verdict Repayment mortgages are a good choice for most people, because they are very flexible. If, for example, interest rates rise to such an extent that you can't cope with the payments, the lender may agree to extend the mortgage term or to let you make interest-only payments for a while. Cost compares well with other types of mortgage.

Read more about Ways of Borrowing

Mortgage Tax Relief

Interest on the first £60,000 of loans taken out to buy your only or main home qualifies for income tax relief. Before August 1988, each single person, or each married couple, had their own £60,000 limit - so joint buyers other than married couples could get relief on loans much greater than £60,000. But from 1 August 1988, the £60,000 limit has applied to each property regardless of the number of buyers.

TIP - If you're joint home owners who aren't married and have a mortgage of more than £60,000 taken out before August 1988, be wary of replacing your existing... see: Mortgage Tax Relief

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