Financial Products for UK Mortgage Product Training

MORTGAGE

Mortgage is a structured loan- term loan to enable you to buy your own home.

The following is an introduction to type of payment methods.

REPAYMENT MORTGAGE

It is also known as the Capital and interest mortgage. This involves the borrowing of a Sum of money over a chosen term, often 25 years, over which the borrower makes a monthly payment to the lender that includes interest as well as part of the capital. This is the only method which guarantees that by the end of the mortgage term, the mortgage would be paid off. The borrower can see the mortgage debt reducing each year.

INTEREST ONLY MORTAGE

In this kind of payment method the borrower agree to pay only the interest each month and the capital borrowed is paid off the end of the term as lump sum.

This, therefore, requires a separate saving vehicle to run the mortgage so that the mortgage can be paid at the end of term. This is usually in the form of an endowment, ISA or pension.

The three most common savings vehicles used for mortgage repayment are

ISA: One can benefit from the tax concessions available within these plans. It is from the proceeds of your plan that pay off your mortgage. An added opportunity, if ISA performs exceptionally well, or you can afford additional payments it, is that you may be able to repay your mortgage ahead of schedule.

Pension: By using the tax free lump facility available from pension plan to pay off your mortgage debt, you can take advantage of the tax relief they are available on pension contributions.

Endowment: These are life Assurance Policies that serve two purposes. Firstly They Provide Financial Protection in case you die before the end of the mortgage term. Secondly, if you survive throughout the policy term, the investment element of the policy provides a lump sum (maturity value) that be used to repay the outstanding mortgage debt.