An installment payment is a term commonly used in the UK to describe a mortgage where a monthly payment consists of repaying the amount of borrowed capital and accrued interest, so the amount borrowed decreases over the period and at the end the loan period has been settled. This is in contrast to interest mortgages only (such as endowment mortgages or some kind of mortgage balloon payments) where monthly payments are for interest, and the borrower must repay the full loan on a timeframe at once.
One of the advantages of a mortgage payment is that it eliminates the risk of having an investment (such as that of an endowment mortgage), whose performance depends on the stock market. Borrowers also tend not to suffer negative equity because the mortgage balance will decrease from month to month.
As time passes, the percentage of equity in the property increases. However, in the early years, most repayments were made up of interest components, so not much capital was actually paid off for some time.
Video Repayment mortgage
References
Maps Repayment mortgage
See also
- UK mortgage terminology
Source of the article : Wikipedia
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