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The repayment of capital

There are many ways to actually repay the capital you borrow.

You can pay some of it back each month, slowly reducing the amount you owe (a repayment mortgage), or set the money aside in an investment such as an ISA, which can be used to repay the capital at the end of the term (an interest-only mortgage).

The amount you have to save, or the rate at which you repay the debt, depends on the term of the mortgage and, (if you are using an investment) the growth rates actually achieved.

The repayment route is the safest as you can be sure that the mortgage will be paid off at the end of the term, provided all payments have been made in full and on time.

Alternatively, with the interest-only route, an investment may be used to generate a fund with the aim of paying off the mortgage and generating a surplus. However, if growth is lower than expected there may be a shortfall. The investment route cannot normally offer a guarantee of debt clearance, as the value of the investment can go down as well as up and you may not get back the full amount invested.

We have created a range of useful calculators to help you explore the options open to you.

When using these it is best to be conservative in your assumptions about growth. For your information the Financial Conduct Authority's maximum allowed growth rate for official projections of tax efficient investments like ISAs is 9 per cent per annum.

Part of a mortgage adviser's role is to help you choose the most appropriate method of capital repayment.

Your property may be repossessed if you do not keep up repayments on your mortgage.

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The value of investments and income from them can fluctuate, and investors might not get back the full amount invested. Past performance is not a guide to future performance. Equity based investments do not afford the same capital security that is afforded with a deposit account.

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