A repayment mortgage is the most common type of mortgage in the UK. Each monthly payment you make is split into two parts: one covers the interest charged by the lender, and the other reduces the outstanding loan balance. Over time, the proportion going towards interest decreases while the amount reducing the capital increases.
This structure means that by the end of your agreed mortgage term — typically 25 to 35 years — you will have repaid the entire loan in full. The property is then owned outright, free of any mortgage debt.
Repayment mortgages are generally considered lower risk than interest-only alternatives because you are guaranteed to clear the debt provided you keep up with payments. Most lenders and mortgage advisers recommend this type for residential borrowers, particularly first-time buyers.
You borrow £200,000 on a 25-year repayment mortgage at 4.5%. Your monthly payment is approximately £1,111. In the first month, around £750 goes towards interest and £361 reduces the capital. By year 20, most of each payment is reducing the balance, and at the end of 25 years the full £200,000 is repaid.
Key Points
- Monthly payments cover both interest and capital repayment
- The loan is guaranteed to be repaid by the end of the term
- Early payments are mostly interest; later payments are mostly capital
- Generally considered the safest option for residential borrowers
- Overpayments can shorten the term and reduce total interest paid