Mortgage Types
The
following notes are supplied to you
in compliance with the guidelines
set down in the Code of Mortgage Lending
Practice.
For
most types of mortgage the methods
of repaying the loan amount are:
Repayment
of Capital & Interest
Investment Backed Interest
Only
Part Repayment Part Investment
Interest Only Mortgages
Base Tracker Mortgage
Flexible Mortgage
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Repayment
of Capital & Interest
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As well as interest payments being
made, the mortgage loan amount is
gradually reduced throughout the term,
so at the end nothing remains owing
to the lender.
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Investment
Backed Interest Only
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Only interest payments are made throughout
the term of the loan, with the original
loan amount remaining at the end of
the term.
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Part
Repayment Part
Investment
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This is a combination of the two payment
methods, where part of the loan is
fully repaid over the mortgage term,
with the other part as interest only.
The capital sum remaining at the end
of the term is to be repaid from the
proceeds of an investment plan.
Interest only payments are made throughout
the term of the loan and the original
loan amount remains payable to the
lender at the end of the term.
An
investment (savings) plan which pays
out a lump sum in later years is used
to repay the loan amount remaining
at the end of the term.
Examples
Endowment - a form of savings based
life assurance policy frequently used
to repay home loans.
Pension mortgage - an interest only
mortgage where the capital will be
repaid from the tax free cash sum
that can be received from the pension
fund at maturity.
ISA- an investment plan normally based
on stocks and shares.
There is no guarantee with any of
the examples above that the plan will
return sufficient funds to repay a
loan in the future.
A relatively new concept, similar
to the standard variable rate. The
rate follows the Bank of England lending
rate, normally plus a fixed percentage
declared at the outset.
Different
lenders offer different rates over
the Bank of England rate. The total
rate charged is normally below the
standard variable rate.
Offers
the ability to make regular over payments
and with agreement from the lender,
payment holidays. The borrower can
use the equity in their property as
a capital reserve and in some cases
have a cheque book to draw on the
capital reserve as required. Any payment
holiday normally means the amount
under paid is added to the loan, which
in turn can increase the repayment
due in the future.
Over payments will reduce the loan
and so save on interest over the mortgage
term.
This type of repayment method is not
suitable for all clients as a disciplined
repayment schedule is necessary and
we would encourage careful consideration
before taking this type of arrangement.
If
you fail to make suitable arrangements
to repay the mortgage loan amount
at the end of the full term the lender
may have no option but to take proceedings
to repossess your property. It is
your responsibility to ensure that
an adequate repayment method is in
place. Your lender will remind you
annually of the need to make sure
that an adequate repayment method
is in place.
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