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What is a repayment mortgage?

Repayment mortgage or amortisation mortgage

There are two types of repayment mortgage:

  • linear
  • annuity
With the linear mortgage you pay off the same amount every month for the entire mortgage term, but because you are paying off the mortgage, the amount of interest you pay decreases. With this mortgage you have higher gross monthly payments at the beginning of the term and lower towards the end. This is the reason why it may not be the best option for starters. Due to the decreasing interest also the tax benefit will be lower every year. The tax benefit is the highest at the start, but at that moment your income as a starter my not be the highest, meaning that the interest is deducted at a lower percentage than the tax rate which may be applicable at a later age.
With the annuity mortgage you pay the same amount every month in total, comprised of repayment and interest. In the beginning of the mortgage term the amount comprises mostly of interest and less of repayment, as the term carries on you start to pay more on repayment and less on interest. With this mortgage you have the same gross monthly payments throughout the whole term of the mortgage. This makes it easier to plan your payments. The same comment about the deduction of the mortgage interest is applicable on the annuity mortgage.
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