A mortgage is a loan, which is secured on your property. The mortgage
deed is the legal contract between the borrower and the lender. There
are various types of mortgages, including repayment, interest
only (endowment, ISA, PEP and pension) and a flexible mortgage. In all cases
your regular payment includes interest, but how the capital is repaid
depends on the type of mortgage selected.
Repayment mortgage
A Repayment mortgage is where
you pay off part of the capital each month as part of your regular
payment. The amount of capital you
pay off per month generally increases towards the end of your mortgage
term. For example:
For illustration purposes only.
In general, the shorter the period of the loan, the higher the monthly
payment will be.
Interest Only mortgage
An Interest Only mortgage is where you repay the loan amount separately,
for example, by an investment vehicle such as an ISA, endowment,
PEP or pension. Provided the interest rate is constant, the monthly
amount will remain constant, regardless of the length of the loan.
Endowment mortgage
Endowment mortgages are interest-only mortgages repaid using
an endowment policy as the investment vehicle. An endowment policy
combines life assurance and savings. This type of policy is intended,
but
not guaranteed, to repay the loan at maturity, but will also repay
the loan if you should unfortunately die during the term of the
policy. Because the endowment policy may leave a shortfall, many
companies
offer review facilities to ensure that the policy stays on track.
An endowment mortgage therefore consists of the loan on which you
pay interest to the lender and the endowment policy on which you
pay premiums to the product provider.
Most endowments have a range of options such as waiver of premium,
which is intended to pay the premiums on your policy if you are
unable to work for a period of time due to accident, sickness or
disability.
Most endowment policies are invested in equity based funds. As
such they are intended as a medium to long term investment which
should
be held to maturity . Because they are equity linked their value
may go down as well as up. As a result, you may not get back the
full amount invested, especially if you withdraw from the investment
in the early years. The policy can be invested in either with-profits or unit-linked funds.
ISA, PEP and Pension mortgages
ISA, PEP and Pension mortgages are interest
only loans,
which, instead of relying on an endowment policy to pay off the
loan amount at the end of the mortgage term, use an alternative
investment
policy, for example an ISA, PEP or pension.
Most ISAs, PEPs and pensions are equity linked arrangements and
so are intended as medium to long term investments (usually considered
to be five years or more). Because they are equity-based, they
are dependent on stock market movements. It also means your capital
is
not usually guaranteed to be safe and so you may lose some or all
of it.
If the investment is a unit-linked one, its value can reduce in
direct relation to the stock market prices of its underlying assets,
although it can also rise. This means you may not get back all
the money you invested. If it is a with-profit arrangement, there
is
not the same direct link between the underlying assets and the
value of your policy. This is because the insurance company holds
back
some profit from good years to offset losses in poor ones - this
is referred to as smoothing. The provider cannot withdraw any reversionary
bonuses declared, although your early withdrawal may result in a
Market Value Adjustment - effectively a financial ‘penalty'.
You can save through either an ISA or a personal pension. There
are different types of ISA offering a wide range of investment
options. In the past, you may have saved through PEPs (Personal
Equity Plans).
Since 6 April 1999, you have not been able to pay any new money
into PEPs but you can continue any PEPs you had already started
before
that date.
Examples of pensions are executive pension plans and personal pension
plans to name but two. Your personal circumstances may suggest
utilising the lump sum available in your pension policy as a mortgage
repayment
vehicle. We can discuss this with you in detail if it is appropriate.
Separate life cover may be required by your lender if you take
out an interest only mortgage with a repayment vehicle that doesn't
include
life cover as part of the policy, for example a PEP, ISA or personal
pension.
Flexible Mortgage
Many people have their financial arrangements
split between various sources and as a result they will have a
number of different interests rates and charges for their mortgage,
personal
loans, credit cards and current account.
With a flexible mortgage all this can be combined in a single account,
charging a single interest rate on all of these personal borrowings.
This can have the effect of reducing the amount of interest paid
over the term of a mortgage.
Remember: this section contains general information only and is
not an indication that any particular mortgage product is available
or is suitable for you. Please contact
us to answer specific queries
or arrange an appointment to discuss your personal circumstances.
Authorised and regulated by the Financial
Services Authority (reg. no. 135181).
YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR
OTHER LOAN SECURED ON IT.
Written quotations available on request. Loans subject to status and only
available to persons aged 18 and over. Loans are secured on your property
and a life policy may be required. |
Hedgelands Financial Services Ltd, Hedgelands, Abbotskerswell, Newton
Abbot, TQ12 5PW
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Telephone
0845
165 1280
General Insurance
0845 165 1281
Fax
01626 332622
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