Chartered Institute of Stockbrokers (CISI) Professional Practice Exam

What is a main advantage of a repayment mortgage compared to other mortgage types?

1. The mortgage is secured against the property

2. It has a fixed interest rate for the entire term

3. The mortgage is guaranteed to be paid off at the end of the term

4. The monthly payments decrease over time

The correct answer is: The mortgage is guaranteed to be paid off at the end of the term

A significant advantage of a repayment mortgage is that it is structured to ensure that the loan is fully paid off at the end of the loan term. This is accomplished through a payment plan where each monthly payment includes both interest and a portion of the principal, leading to a gradual reduction of the outstanding balance. By the time the mortgage term concludes, the borrower will have repaid the full amount borrowed, providing peace of mind and security in knowing that they own the property outright. In contrast, some other mortgage types, like interest-only mortgages, do not require the principal to be paid down during the term, which can leave borrowers with a substantial amount due at the end. While secured loans provide certain protections to lenders, and fixed-rate mortgages offer stability in monthly payments, neither of these features guarantees repayment of the loan principal by the end of the term. Thus, the repayment mortgage stands out for its assurance that the debt will be completely eliminated upon completion of the payment schedule.