Capital and Interest
A capital and interest, or 'repayment' mortgage, as it is commonly known, is a mortgage where each monthly payment made to the lender will contain an element of capital in addition to the interest payable on the loan.
The proportion of each will change throughout the period of the loan. The proportion of capital increases with each monthly payment provided that the payments due are met in full and on time.
In the early years of the mortgage, the monthly mortgage payment consists mainly of interest, therefore little capital is repaid until several years have passed.
After about 13 to 15 years, (on a 25-year mortgage) the amount of outstanding capital being repaid each monthly sharply accelerates and the outstanding mortgage then starts to reduce more rapidly.
