Types of mortgage

Don’t forget to calculate your budget

The two most common options for repayment are repayment mortgages and interest-only mortgages.

However there are other types of property loan available, depending on how much you need and what you need it for.

Bridging Loans are short term loans you can take out to cover you between property sales, for example if you buy a new property before you have sold your current one. Bridging loans are also used in the construction and property development industry to top up budgets of projects that have gone over budget or to keep the build on schedule. Rates tend to be higher than usual making this an expensive way of borrowing money.

Property Development Finance is available from private lenders specifically for new builds and development projects. The terms are different to taking out a mortgage or re-mortgage so check whether you are eligible here – standard lending criteria.

Repayment mortgages

On a repayment mortgage, also known as ‘capital and interest repayment’, each month you will repay the capital (the loan amount) and the interest thereon. This is a favored mortgage option since it assures that when the repayment period is over, the property is entirely paid and the lender is owed nothing further. Talk to a broker.

The repayment method also ensures that you needn’t depend upon a linked investment vehicle to create the wealth needed to repay the capital required at the end of the mortgage period. This option does allow you the security of knowing the lender is being paid the correct amount every month but the monthly repayments are higher than interest only as you will be paying back both the capital and interest in each payment. How much will the bank lend you?

Interest-only mortgages

If you choose the interest-only plan, your monthly repayments will only go towards paying the interest on the loan amount. The monthly payments will be less but the capital itself is not being repaid.

You must therefore have in place an independent investment vehicle that will generate the capital needed to pay off the capital at the end of the mortgage term. Apply online today.

House prices have increased significantly recently and this has prompted more people to settle for an interest-only plan as a means of getting the property but then have not set up a repayment method that can create the required end of term capital. This is not advisable and it can leave borrowers vulnerable later in, therefore anyone thinking of doing so should first consult a mortgage adviser.

If you decide on the interest-only option, make appropriations for repaying the capital and decide which vehicle is suitable in your specific situation. An Independent Financial Adviser will be able to suggest possible capital generating options.

Endowments mortgages

Endowments used to be a widely used way of ensuring borrowers could pay their mortgage off completely. The borrower would pay the interest amount to the provider, as with interest-only, but also pay into an endowment. This is not only a method whereby the mortgage holder can save, but there is a life insurance aspect to an endowment plan that takes care of the mortgage in the event that the holder should die.

Endowment mortgages have decreased in popularity since many with this option in the 1980’s saw the stark reality of what can happen through investments being connected to the stock-market. Specifically, endowment holders had to look somewhere else for capital since slumps in the economy saw their investments decreased below the level of required capital.

Lenders have stringent criteria in place for this type of mortgage. Find a mortgage broker.

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