A repayment mortgage is where, over the course of the mortgage term, monthly payments are made to repay interest on the capital and to repay the actual loan itself.
Initially, it will be the interest repayments that will generate the higher amount of payment. This is because the actual loan payment owned is at its highest level. Therefore, for the first few years, the loan amount will not reduce very much. It will only be as the years pass by that more of the monthly repayments will be applied to reducing the loan. Towards the end of the term, the roles will be reversed in that more will be paid towards the loan and less towards the interest capital.
If interest rates rise continuously then the monthly repayments will also rise in accordance with this. However, it is possible to keep the monthly repayments at the same level but this means that the repayment terms will need to be extended to cover the interest rate rise.
