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If the borrower makes the payment each month on time, then the mortgage is cleared within a specified number of years.Usually most borrowers always opt for repayment mortgages because they are considered to the least risky option for the borrower. However, there are disadvantages of repayment mortgages which the borrower should know before opting for such a mortgage.
Usually the amortization period for repayment mortgages are 30 years or 20 years. In the initial stages of the mortgage, most of the payments that you make monthly go to cover the interest. It is only in the last few years that the principal is covered. So, it is many years before you can build equity in your home or even make a significant reduction in the principal amount. However, there is a possibility of making additional payments over and above the monthly payments to reduce the principal.
Repayment mortgages are very inflexible in terms of interest rate, payments and term of the mortgage. You cannot change the interest rate or the monthly payment in case you have any financial issues. Also, you cannot change the term of the mortgage unless you opt to refinance the loan.
If you should sell the house a few years after taking a repayment mortgage, you will hardly have any equity in the house. Therefore, the amount you get after selling will go towards payment of the mortgage. So, people who do not intend staying in a house for too long should not opt for repayment mortgages.
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