Mortgage works

How a capital repayment mortgage works With a capital repayment mortgage, your monthly repayments are calculated so you'll have repaid all the debt and the interest over the term you agree (for example, 25 years). It means your monthly payments cover the interest as well as chip away at the actual debt – so at the end you owe nothing. This has a strange effect. In the early years, your outstanding debt is larger so most of your monthly repayments go towards paying the interest. Gradually, as you reduce what you owe, the balance shifts and most of your repayments go towards paying off the debt. For example, on a £150,000, 25-year mortgage at 5%, you'll pay £877 a month. After 10 years you'll have made £105,240 in payments, but only reduced what you owe by £39,000. Yet after a further 10 years, having paid another £105,240 you've reduced the debt by a further £65,000. This is because less interest is accruing each year. Many people, once they realise this, then worry that if they ever remortgage to another deal, they'll lose all the work they've put into decreasing what they owe. This isn't true. Provided you keep the same debt and the same number of years left until it ends (in other words, you have 14 years left to repay and you still intend to repay it in 14 years) it stays the same.