| Share | | | | key scenario with endowments is that you make fixed |
| For the average person, it's certainly not easy getting | | | | investment payments with the idea that when your |
| your head around mortgage financing – since | | | | mortgage term is finished they will pay for your capital |
| jumping on the property ladder is a major and long | | | | loan in full. These fixed payments are calculated on the |
| term investment; the following guide has been | | | | amount of your capital loan together with the |
| designed to help you get to grips with the basics. | | | | mortgage term you select. Once very popular in the |
| In a nutshell, a mortgage entails borrowing an agreed | | | | 60's and 70's, they subsequently received bad press |
| sum of money from a building society or bank to | | | | because poor investment growth rates in a low |
| finance the buying of your first home. You then pay | | | | inflationary economy meant that when endowments |
| back this loan plus interest over a fixed period of time. | | | | matured the amount invested and earnings were not |
| There are various ways and packages to do this. The | | | | enough to pay for the capital sum. They are however |
| bottom line is that there are two main ways to finance | | | | still used for mortgage payments by millions of |
| the property of your choice: | | | | borrowers. Endowments can still be of significant |
| Repayment Mortgage - Capital & Interest | | | | benefit, but you are strongly advised not to cash them |
| Similar to repaying your credit card debts, this option | | | | in early – by cashing-in your endowment policy in |
| entails you repaying in monthly instalments the full or | | | | the first few years you could receive less than the |
| capital amount you borrow together with interest | | | | amount you originally invested. |
| calculated on top,. Your mortgage statement will | | | | ISA |
| generally be received annually, with the outstanding | | | | An Individual Savings Account (ISA) is a tax free way |
| balance you owe obviously decreasing during the | | | | of saving your money. Because of their financial |
| length of your repayment term. | | | | complexity however, to really be on solid ground with |
| Pros & Cons | | | | this option you need to be financially savvy or take on |
| The benefits of a straightforward repayment plan are | | | | a sound financial adviser. |
| that at the end of the agreed term you will have | | | | Pension Plan |
| repaid the amount you borrowed in full. The added | | | | With this choice, your monthly repayments will be |
| cost of life insurance is not always necessary with this | | | | made into a pension fund and you'll also get life |
| type of arrangement and often (depending on the | | | | assurance cover. When the pension plan funds are |
| lender) you can make lump sum payments and | | | | eventually released, they will pay off your mortgage |
| overpayments into your mortgage account to reduce | | | | capital debt using tax-free cash. You can then draw a |
| your capital debt and thus your interest. | | | | pension from the remainder of the fund amount. This |
| The disadvantages are that if you choose not to take | | | | package is popular with the self employed but you're |
| out life insurance and die before your mortgage loan is | | | | advised to use a financial adviser to help you keep on |
| repaid, the debt will still be owed and your relatives | | | | track. |
| might have to sell the property to settle it. Another | | | | Pros & Cons |
| factor is that your loan provider could charge penalties | | | | The advantages of interest only mortgages is that |
| for making overpayments /lump sums into your | | | | they're highly tax efficient and if the proceeds of your |
| mortgage account, so when shopping around for a | | | | investments exceed the amount required to repay the |
| mortgage make sure to find out their fees for this. | | | | mortgage, you'll receive a tidy lump sum in addition to |
| Also bear in mind that a majority of loan providers | | | | paying off your home. |
| take your monthly repayments to cover a large portion | | | | The drawback however is that if your repayment |
| of the interest first before you start truly chipping | | | | vehicle proceeds don't achieve the capital sum you |
| away at the capital loan itself. | | | | owe then you will be in trouble. It's thus very important |
| Interest Only Mortgage - ISA, Pension or Endowment | | | | to keep a vigilant eye on your policy fund to make |
| As per its title, with this type of mortgage means your | | | | sure it's keeping pace. If it's not, a solution could be to |
| monthly repayments only cover the interest charge | | | | increase your payments into the policy or find another |
| set by your lender, the capital lump sum is not | | | | investment to cover the shortfall. Another issue is that |
| addressed. The way this works is that to cover the | | | | paying off these types of plans early can incur financial |
| payment of the capital loan you will have an alternative | | | | penalties. |
| 'repayment vehicle', which will be an ISA, an | | | | If you're inexperienced but interested in first time buyer |
| endowment or a pension plan. | | | | mortgages, the above guide will help you understand |
| Endowments | | | | the fundaments. What is crucial is to always do your |
| These are the most common of this type of | | | | research thoroughly so that you can find the financing |
| mortgage. They include life insurance cover so that in | | | | deal that best suits your needs. |
| the event of death your mortgage will be paid. The | | | | |