A simple definition of mortgage payments is the repayment of any loan, which you may take to buy a home. Usually mortgages last for 25 years. The average loan amount for a first-time buyer is £137,000, and the average amount borrowed for a remortgage is £144,500.
Based on their payment arrangement, there are different types of mortgages. Repayment mortgages and interest-only mortgages are the two main types.
Repayment mortgages: In these types of mortgage payments, your monthly payment includes both the principal as well as interest. So if you have a loan of £190,000 at 1.5pc for 15 years, you will be paying £1,186.61 each month. This amount will include some portion of the principal as well as interest. Once the loan term ends, you would have fully repaid the loan.
Interest-only mortgages: As the name suggests, in these types of mortgages your monthly payment comprises only of interest. While the monthly liability is lower than the repayment mortgages, you will be expected to repay a large amount when the loan ends. Interest-only mortgages are risky unless backed with a prudent savings strategy. Also in the long term, you will end up repaying a lot higher than the original cost of the property.
In 2013, the average household paid £666 per month in mortgages. In London, this average was £1,031 per month. As you can see, mortgage payments form an essential element of the household budgets. While going for a mortgage decision, you should take your repayment capacity into consideration. Higher mortgage payments mean less money for savings as well as other household expenses.
Use our household budget calculator to see how mortgage payments affect your household budget.
As per the Council of Mortgage Lenders (February 2014), the UK has almost 11.2 million mortgages with a combined debt of more than £1.2 trillion.