Repayment Mortgage
A mortgage where your monthly payments cover both the interest and a portion of the capital, so the debt is fully repaid by the end of the term.
What is a Repayment Mortgage?
A repayment mortgage (also called a capital repayment mortgage) is the most common type of mortgage in the UK. Each monthly payment you make covers two components: the interest charged on your outstanding balance and a portion of the capital (the original amount borrowed). By the end of the mortgage term, you will have repaid the entire debt and own your property outright.
Why it matters
The key advantage of a repayment mortgage is certainty. Provided you keep up your payments for the full term, your mortgage will be fully paid off. There is no need to arrange a separate investment or savings vehicle to repay the capital, which removes a significant layer of risk compared to interest-only mortgages.
How repayments are structured
In the early years, a large proportion of each payment goes toward interest, with only a small amount reducing the capital. As time goes on and the balance decreases, the split shifts so that more of your payment goes toward capital. This is why overpayments in the early years are particularly effective -- they reduce the balance at a point when interest charges are highest.
Practical example
On a £200,000 repayment mortgage at 4.5% over 25 years, your monthly payment would be approximately £1,112. In the first month, around £750 covers interest and £362 goes toward capital. By year 20, this ratio reverses, with most of the payment reducing your balance.
Comparing with interest-only
Monthly payments on a repayment mortgage are higher than interest-only because you are paying down capital. However, the total cost over the life of the mortgage is typically lower because your balance reduces each month, meaning you pay less interest overall.
Important caveats
If you extend your mortgage term to reduce monthly payments, you will pay significantly more interest in total. A £200,000 mortgage at 4.5% costs around £133,000 in interest over 25 years but roughly £178,000 over 35 years. Always consider the total cost, not just the monthly figure, when choosing your term length.