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An Interest Only mortgage will run its term and provided that no lump sum repayments have been made, the balance outstanding will remain the same as the sum originally borrowed.
With many more borrowers opting to take out Interest Only mortgages, the importance of having a repayment vehicle in place to run alongside the mortgage it is often overlooked. Undoubtedly the increase in the popularity of these types of mortgages is due to the affordability factor in light of the need for borrowers to secure larger loan sizes.
The reasons why borrowers choose an Interest Only mortgage will differ from borrower to borrower; There will be those who take out an Interest only mortgage with a view to repaying the balance at the end of the mortgage term from their chosen investment, and there will be those borrowers who utilise the interest only payments as a short term solution to a more pressing financial need.
Mortgage Repayment Vehicles include:
# Full with-profit endowment policy;
# Low-cost with-profit endowment policy;
# Unit-linked endowment policy;
# Individual savings account (ISA);
It is always advisable to speak to a professional Financial Adviser before deciding on which route to go down. Mortgage advisers may provide information about these investment backed products, as this article intends to do, however only those individuals who are authorised under the Financial Services and Markets Act 2000 can give advice and make recommendations.
Endowment Policies
An endowment policy, whether with profit or unit linked has two key elements; firstly the policy guarantees to repay the loan in full if the borrower dies during the mortgage term (this is however subject to all policy premiums having been paid and the mortgage account being up to date) and secondly, it is the intention of the policy to provide a maturity value that is sufficient to fully repay the loan at the end of the mortgage term and at the same time, provide a surplus for the investor.
Individual Savings Accounts (ISAs)
ISAs were introduced into the market on the 6th April 1999 and they replaced PEPs and TESSAs from that date.With an ISA mortgage, an interest only arrangement is made with the lender whilst the entire capital will remain outstanding throughout the term.
Investment is then made into an individual Savings Account on a regular basis and at the end of the mortgage term the ISA fund will be used to repay the balance. There are two types of ISA – an Equity ISA and a cash ISA. Separate life cover will usually be needed to repay the loan early death.
To summarise between the different mortgage repayment vehicles; An endowment policy provides both protection and investment elements for the borrower, whilst Personal Pension Plans and ISAs will provide the investment element but do not contain any built in life cover – this will need to be arranged and paid for separately by the borrower.
Related Links: Adverse Credit Mortgages Commercial Mortgage Fixed Rate Remortgage
With many more borrowers opting to take out Interest Only mortgages, the importance of having a repayment vehicle in place to run alongside the mortgage it is often overlooked. Undoubtedly the increase in the popularity of these types of mortgages is due to the affordability factor in light of the need for borrowers to secure larger loan sizes.
The reasons why borrowers choose an Interest Only mortgage will differ from borrower to borrower; There will be those who take out an Interest only mortgage with a view to repaying the balance at the end of the mortgage term from their chosen investment, and there will be those borrowers who utilise the interest only payments as a short term solution to a more pressing financial need.
Mortgage Repayment Vehicles include:
# Full with-profit endowment policy;
# Low-cost with-profit endowment policy;
# Unit-linked endowment policy;
# Individual savings account (ISA);
It is always advisable to speak to a professional Financial Adviser before deciding on which route to go down. Mortgage advisers may provide information about these investment backed products, as this article intends to do, however only those individuals who are authorised under the Financial Services and Markets Act 2000 can give advice and make recommendations.
Endowment Policies
An endowment policy, whether with profit or unit linked has two key elements; firstly the policy guarantees to repay the loan in full if the borrower dies during the mortgage term (this is however subject to all policy premiums having been paid and the mortgage account being up to date) and secondly, it is the intention of the policy to provide a maturity value that is sufficient to fully repay the loan at the end of the mortgage term and at the same time, provide a surplus for the investor.
Individual Savings Accounts (ISAs)
ISAs were introduced into the market on the 6th April 1999 and they replaced PEPs and TESSAs from that date.With an ISA mortgage, an interest only arrangement is made with the lender whilst the entire capital will remain outstanding throughout the term.
Investment is then made into an individual Savings Account on a regular basis and at the end of the mortgage term the ISA fund will be used to repay the balance. There are two types of ISA – an Equity ISA and a cash ISA. Separate life cover will usually be needed to repay the loan early death.
To summarise between the different mortgage repayment vehicles; An endowment policy provides both protection and investment elements for the borrower, whilst Personal Pension Plans and ISAs will provide the investment element but do not contain any built in life cover – this will need to be arranged and paid for separately by the borrower.
Related Links: Adverse Credit Mortgages Commercial Mortgage Fixed Rate Remortgage
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