The initial amount you can borrow is called the capital, and there are two main ways of repaying this. These are covered below. You also need to pay interest on the capital you borrow -- and there are more options you can choose here but we'll cover these further on. Firstly, it is important to understand how the lenders structure your repayment of a mortgage.
How do the Lenders structure a mortgage
The lenders take the loan required (this is known as the principal sum) and then work out the interest you will owe them over the full term of the mortgage. This is in effect an additional sum you now owe the lender. For example, you wish to borrow R1,000,000 and will repay it over 20 years. Let’s say the interest rate (that can vary through the term of the mortgage) is 10%.
In reality you have now borrowed two loans from the lender. The first is the R1000,000 principal sum. The second is the interest over that 20-year period. In this case this equals (before any repayments have been made) R2000,000. This is calculated by the annual cost of the interest (100,000) multiplied by the term of the mortgage (20 years).