When you borrow money, methods of repayment vary with the type of mortgage. If you have a capital repayment or annuity mortgage, your monthly payments are made up in part of the interest you pay on the amount borrowed, and in part on repayment of the loan itself, called capital. Capital is the term applicable for the money you have borrowed and are paying back directly to your lender. Unless the interest rate changes, your monthly payments remain the same through out the period of your mortgage.

In the first year of your mortgage, most of your monthly payment is interest on the loan, and only a tiny amount is paying off the capital. Your monthly mortgage payments in the second year will be the same, but the proportions of interest and capital will begin to change so that your payments will consist of slightly less interest than in your first year, and slightly more capital.

As each year goes by, you will pay off more of the amount borrowed. As you pay interest on a smaller and smaller amount, more capital is paid off and by the end of the loan period your payment is almost all capital, with only a tiny amount of interest. Some capital repayment mortgages require only a very small amount of the capital to be repaid in the first few years. The payment of capital is loaded into the remainder of the term, so as to make the monthly payments less costly at the onset. These are called low-start capital repayment mortgages. The mortgage protection life insurance policy requires you to make a small payment but it is very important, as it makes sure that your family is not left with the worry of repaying the loan if you die before the end of the term.