| How
to Repay
Repayment
Mortgage
This is a basic type of mortgage which pays
back the capital you have borrowed to buy your home and the interest
charged on this by your lender. It does not include any life assurance
protection.
Interest-only
Mortgage
As the name suggests, this is a mortgage where
the interest only is payable and you can repay the capital in various
ways: on the eventual sale of your property; through investing in
an endowment policy or a personal pension; through an expected inheritance;
or through a series of ISAs. These are just a some of the methods
but you must make sure you have something in place to pay off the
capital you owe at the end of your mortgage term.
Endowment
Mortgage
This is essentially an interest-only mortgage
using an endowment policy to repay the capital you owe. The policy
is designed to pay out a lump sum either at the end of your mortgage
term, or at your death if sooner because of the life assurance element
which comes with the endowment. But you must remember that the amount
paid out is not guaranteed and may not be enough to pay off the
capital you owe.
The policy can be transferred to a new property when you move, so
you don't lose the growth you've built up. If you're concerned that
your policy won't make enough to pay off your mortgage, you can
increase your payments, pay off some of your mortgage as a lump
sum or through regular payments, start up another investment such
as an ISA, or do a combination of these.
Pension
Mortgage
If
you choose this type of loan you pay the interest to your lender
but use a personal pension plan to pay off the capital you owe plus
provide you with a pension. This option is popular amongst the self-employed
but you cannot do it if you are a part of a company pension scheme.
Again, the pension may not grow enough to enable you to pay off
the capital you owe and you have to decide whether or not you want
part of your pension to go towards paying off your mortgage.
ISA
Mortgage
With
this type of mortgage, interest on the loan is paid to the lender
and the capital is repaid through investing in individual savings
accounts (ISAs). All the returns you get from your ISA are paid
tax-free. Again, however, the returns you get from your ISA may
not accrue enough money to repay the capital you would owe to your
lender.
Flexible
Mortgage
This
type of mortgage allows you to be more flexible as far as your payments
are concerned. Depending on the scheme, you may be able to make
regular or lump-sum overpayments whenever you like, without incurring
any early redemption penalty. Some deals also let you make underpayments
or take payment holidays, although usually only once you've built
up a reserve of overpayments. Interest is calculated daily or monthly
rather than annually, so any overpayments will reduce the outstanding
balance immediately.
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