 “How do I know what mortgage I need?”
If you take out a loan to purchase a property this is known as a mortgage. This loan will be for a fixed period and you will have to pay interest on this loan. If you do not keep up with the agreed payments, the mortgage lender can take possession of the property.
There are different types of mortgage and it can get confusing deciding which the right mortgage is for you there are many good independent mortgage advisors, it is wise to take advice.
Here are some of the Mortgage Types-
Repayment Mortgage – The capital borrowed is repaid over the period of the loan. The capital is paid in monthly installments along with the interest. The amount of capital being repaid is gradually increased over the years and the amount of interest decreases.
Endowment Mortgage – Consists of two parts i) the loan from the lender and ii) and an endowment policy taken out with an insurance company. You pay back the interest on the loan to the lender, but not the actual loan itself, in monthly installments. The endowment policy is paid monthly to the insurance company. At the end of the policy mortgage, the policy matures and produces a lump sum which should be enough to pay off the original loan amount back to the lender, and maybe and additional lump sum. There is the risk that the endowment policy will not be worth enough to pay off the loan at the end of the mortgage period.
Pension Mortgage – Primarily for self-employed people. The monthly payments consist of interest on the loan and contributions towards a pension scheme. When the borrower retires there is a lump sum to pay off the loan amount and provide a pension.
ISA Mortgage – You pay the interest to the lender and contribute to an Individual Savings Account (ISA) which should pay off the loan.
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