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3 Options are available:
• A Repayment Mortgage
• Interest Only Mortgage
• Combination of the two
A REPAYMENT MORTGAGE
A Repayment mortgage works similar to most types of loans. You make regular monthly payments to the lender, and the payment is made up of capital) i.e. repaying the money you’ve borrowed) and interest.
So provided you always keep up the correct payments, at the end of the term you will have repaid the loan in full.
AN INTEREST ONLY MORTGAGE
With an Interest only mortgage, you pay only interest to your lender. This will mean that you need to make a separate payment into some sort of savings plan, so you can build up a lump sum to pay off the mortgage at the end of term.
The 3 main types of savings plans are: - Endowment policies, ISAs or Pension plans. Its vital to keep up payments as otherwise the funds available to repay the loan is likely to be insufficient. The investment vehicle used is not guaranteed to pay off the loan and you may be liable to make up any shortfall.
A COMBINATION MORTGAGE
Some lenders may allow you to combine both repayment methods. For example; if you took out an endowment mortgage for your first home for £200,000 and you are looking at purchasing your second home at £250,000 you may want to keep your £200,000 endowment until the policy matures, but borrow the additional £50,000 as a repayment mortgage. If you are a first time buyer you can use an existing savings policy such as an ISA to contribute towards a combination mortgage. Another good reason to take out a split repayment mortgage could be to address a potential endowment policy shortfall.
For example if you have a £50,000 endowment policy but have received notification from the policy provider that there could be a £5,000 shortfall, it may be wise to arrange a remortgage that is set up on £45,000 endowment basis and £5,000 repayment basis. This will guarantee that £5,000 of your mortgage balance will be cleared at the end of the mortgage term and has allowed for any potential shortfall on your endowment policy.
Complete the form below and an advisor will contact you to discuss your requirements.
Alternatively you can contact us directly on
01843 852 500
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