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Methods of Repayments
Interest only
With interest only mortgages the monthly payment is only servicing the interest element of the loan i.e. no capital is being paid off the mortgage. The borrower also takes out at the same time, an alternative 'repayment vehicle' (method of paying off the mortgage) such as an ISA, pension plan or an endowment policy.
The monthly repayments do not repay any of the outstanding capital balance. So it is important that the repayment vehicle payments are maintained, otherwise it will not be possible to pay off the mortgage at the end of the term.
ISA
- Includes a protection element and an investment element.
- The fixed payments are based on the amount of the loan together with the mortgage term and are designed so that, at maturity, the amount invested and any growth are enough to pay off the mortgage.
- However - there is no guarantee that, when the endowment matures and 'pays out', the balance will be sufficient to repay the mortgage, the funds success depends on the growth rates achieved.
Pension Linked
- With a pension-linked mortgage, the borrower usually pays a monthly contribution into a pension fund, and pays separate premiums to a life assurance scheme. When the borrower reaches retirement, the cash lump sum repays the outstanding balance on the mortgage.
- Taking out a pension-linked mortgage can be extremely tax efficient, and this is their key advantage. The pension holder is eligible for tax relief pension premiums.
- However, without an understanding of the pensions market or the guidance of a professional in this field, pension-linked mortgages can be complicated and hard to negotiate.
- Anyone using a pension linked mortgage needs to be aware that as part or all of their tax free cash is being used to pay off the mortgage then the overall retirement benefits will be reduced.
Simply complete the enquiry form and a qualified adviser will contact you.
Capital/interest
- With a repayment mortgage the monthly repayments consist of repaying the capital amount borrowed as well as the accrued interest. Your mortgage statement, usually received annually, shows the amount borrowed decreasing throughout the term.
- Generally suitable for clients who want the security of knowing the mortgage will be repaid at the end of the term.
- As the mortgage decreases year on year you are less likely to suffer from negative equity because your mortgage balance will be reducing month on month.
Simply complete the enquiry form and a qualified adviser will contact you.
YOUR HOME MAY BE REPOSSESSED
IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
'You can choose how we are paid for mortgages: pay a fee, usually 0.5% of the loan amount, or no fee and we accept commission from the lender.'
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