What Is a Capital Mortgage?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 20 August 2019
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A capital mortgage is a type of mortgage arrangement that structures the monthly payments so that a portion of both the principal amount of capital borrowed and the interest that is charged for the loan is covered by each of the payments. This is in contrast to mortgage plans that basically repay the interest first and then move on to cover the principal over time. Sometimes known as a capital and interest mortgage, this type of arrangement also provides the lender with certain rights and protections in the event of a default that may not be found with other types of mortgages.

With a capital mortgage, the idea is to begin immediately applying a portion of each payment to both the capital amount borrowed and the interest that is assessed as part of the lending agreement. Most lenders who offer this option also include detailed breakdowns to homeowners, making it possible to easily identify how much of each payment is going toward the principal and how much is going to retire the interest assessed on the loan. This makes it easier for homeowners to use the data when filing annual tax returns, especially in nations that provide specific tax breaks for any homeowner who has purchased a home during the covered period or who held an active mortgage during that same period.


Other provisions may be found in a capital mortgage, depending on the type of governmental regulations that are currently in place and oversee the activities of mortgage lenders and brokers. For example, the matter of debt collection in the event that the homeowner falls behind or defaults on the mortgage is often addressed in the capital mortgage contract. The terms usually allow the lender to assess and collect a minimum amount of interest, based on the remaining duration of the obligation at the time of the default. In addition, any expenses related to the process of debt collection, including fees assessed by a professional debt collector, may also be involved in the final settlement of the default.

A capital mortgage can be an ideal way to arrange the financing for the purchase or a new home, or even a sound approach to refinancing an existing mortgage. As with all types of mortgage options, it is important for the homeowner to assess his or her personal situation and determine if this particular approach to the mortgage is the best option. Most lenders can provide assistance in weighing the benefits and liabilities of this and other types of mortgage arrangements, making it possible to select the plan that is likely to be the best fit for the homeowner now and in the years to come.



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