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.
For illustration purposes only.
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.
If you have not found the information you are looking for, further information on residential mortgages and insurance can be found at www.hedgelandsmortgages.co.uk.
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. |
Your home may be repossessed if you do not keep up repayments on your mortgage.
For mortgage advice we
can charge a fee of typically
£500 or we can receive
commission from the lender.
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Hedgelands Financial Services, Hedgelands, Abbotskerswell, Newton Abbot, TQ12 5PW
Hedgelands Financial Services is a trading name of Honister Partners Ltd. Honister Partners Ltd is an appointed representative of Sage Financial Services Ltd, which is authorised and regulated by the Financial Services Authority. Sage Financial Services Ltd is entered on the FSA register (www.fsa.gov.uk) under reference 150452. The information and content of this website is intended for UK consumers only and is subject to the UK regulatory regime. The FSA do not regulate will writing services and some forms of mortgages and tax planning services. Honister Partners Ltd Registered Office 1 Nicholas Road, London W11 4AN. Registered in England and Wales no. 06923303. |
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Hedgelands Financial Services
Hedgelands
Abbotskerswell
Newton Abbot
Devon TQ12 5PW
map
Telephone:
0845 165 1280
01626 360654
General Insurance:
0845 165 1281
01626 336808
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