The repayment
options can be simplified into two basic types; Repayment
Mortgages and Endowment Mortgages.
Repayment
Mortgages -
each monthly payment you make will be towards the
capital you have borrowed as well as the interest
incurred on the capital. At the end of the term you
will have repaid the mortgage. This type of mortgage
is sometimes also known as a Capital Repayment Mortgage.
Interest-only
Mortgages -
you only pay the interest on the capital you have
borrowed during the loan period. This means that the
capital has to be repaid in full when the loan period
ends. As such, a saving scheme has to be entered into
at the outset in order for the repayment to be possible.
There are three main saving schemes that are used
Endowment Mortgages
use an endowment policy to provide life insurance
and invest an amount each month into investment funds.
Depending on how the investment performs, the total
at the end of the term could be more or less than
your original loan amount.
Individual Savings Account
(ISA) Mortgages are similar to Endowment Schemes
but the use an Individual Savings Account from which
the money is invested on your behalf. Again, the performance
of the invested funds could lead to a shortfall or
surplus at the end of the loan period.
Pension Mortgages
work similarly to Endowment and ISA mortgages but
you deposit an amount each month into your pension
fund. You receive a tax-free lump sum when you retire
and it is from this lump sum that the borrowed capital
will be paid back. You will normally need separate
life insurance to cover the borrowed capital in the
event of your death before you are able to retire.
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