A repayment mortgage is a term generally used in the UK to describe a mortgage in which the monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest. The mortgage statement, usually received annually, shows the amount borrowed decreases throughout the term.
The big advantage of a repayment mortgage is that at the end of the mortgage term, the full amount of the debt has been repaid. It also removes the risk of having an investment, the performance of which is dependent on the stockmarket. The borrower is less likely to suffer from negative equity because the mortgage balance will be reducing month on month.
As time moves on, the equity percentage in the property increases. However, in the early years the bulk of the mortgage repayments consist of the interest component, so not much of the capital is actually paid off for some time.
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