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Mortgages UK - a mortgage is
a sum of money borrowed from a bank or building society in order to purchase a
property. The money is then paid back to the Lender over a fixed period of time
together with accrued interest. There are many different types of mortgages and
there will be one out there that best suits you.
Repayment only
- Your monthly uk mortgages repayments consist of repaying the capital amount borrowed
together with accrued interest. On your mortgage statement, normally received
annually, you will see that the amount borrowed decreases throughout the term.
At the end of the term, you are safe in the knowledge that the total amount of
the debt has been repaid. Overpayments and lump sum payments into your
mortgage account can be made reducing both the interest and capital amounts
repayable. Life assurance cover is not always necessary in taking out this
type of mortgage. There may be financial penalties for making lump
sum/overpayments into your mortgage account. In the early years of a repayment
mortgage the majority of the monthly repayment is interest rather than
capital. For borrowers moving house regularly, this can result in little of
the capital being paid off. If you have no life assurance cover in place and
die before the loan is repaid, the mortgage will still need to be repaid. This
may result in the property having to be sold to repay the debt owed.
Interest only -
With this type of mortgage, only the interest is paid off with each mortgage
payment. The borrower also takes out at the same time, an alternative
‘repayment vehicle’ (method of paying off the mortgage calculator) such as an
ISA, pension plan or endowment policy. The most important fact about an interest only mortgage is that the
monthly repayments do not repay any of the outstanding capital balance. As a
consequence it is important that the payments are maintained into the
repayment vehicle otherwise it will not be possible to pay off the mortgage at
the end of the term. If the proceeds of the plans exceed the amount required
to repay the mortgage, then this is received as a cash lump sum by the
borrower. Some plans are tax-efficient. If the proceeds of the repayment
vehicle do not achieve the amount expected, then there will be a shortfall.
The borrower remains liable for any shortfall on the mortgage hence the
outstanding balance will need to be paid off from other resources. Regular
checking of the policy fund itself by the borrower and the lender should
minimise any risk. If the plan is not reaching its expected target, the
borrower can increase payments into the policy or invest in another product to
cover any anticipated shortfall.
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