Your guide to
buying your home - Choosing a mortgage
The two most common types
of mortgage are the repayment and the endowment.
Repayment mortgage
With this type of loan the
monthly repayment covers both the interest on the outstanding loan and
the amount for the repayment of capital. The repayments are calculated
so that the amount borrowed will be fully repaid at the end of the term
agreed for the mortgage. Borrowers are advised to take out some form
of mortgage protection insurance with this type of loan.
Endowment mortgage
Two monthly payments are required
for this type of loan. One is to cover the interest due on the loan,
whilst the other covers the premium payable on an endowment plan with
a life assurance company.
The capital sum borrowed remains
outstanding throughout the full term of the mortgage (unless arrangements
are made to repay prematurely), which means that interest is calculated
on the full amount of the loan during this period.
The aim of the endowment plan
is to build up a cash sum sufficient to repay the amount borrowed by
the end of the mortgage term, although this cannot be guaranteed and
in the event of a shortfall you will be expected to make up the difference.
In addition the plan provides
life assurance protection, which means the mortgage will be repaid in
full should any of the borrowers die during the mortgage period.
An endowment plan is a long
term investment and if you surrender or cash in the policy prematurely,
you may lose out on its potential value.
