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Mortgage Loans Debt
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UK Mortgages - 2007/05/09 17:58
The investment plan required to pay off the mortgage usually comes in one of three forms; an Individual Savings Account (ISA), a pension or an endowment. This investment does not have to be provided by the mortgage lender so it is strongly recommended that you find one that can be included. Obviously, do your own research to see if the rate of interest you would be getting on these investment plans is the going rate; otherwise pursue them with another financial institution.
The advantages for initiating an ISA, pension or endowment plan is that these ‘investment vehicles' are tax efficient. Also, if the investment growth rate exceeds those estimated at outset then there is a possibility you may be able to pay off your mortgage early or enjoy a lump sum at the end of the repayment period, in addition to paying off your mortgage.
However, the disadvantages are that you will have no guarantee that you will have accumulated the sufficient funds needed to pay off the mortgage at the end of the repayment period, as the investment could perform below that assumed at the start. Our experts recommended monitoring your investment's performance throughout the duration of the mortgage so that you can make additional contributions if you felt the fund was under performing. There is also the chance that a penalty fee may be incurred with some forms of investment if you stop paying the premiums. And remember, the debt will always remain constant throughout the term of the mortgage period.
Choosing an interest only mortgage can make it so you can afford to stretch that little bit further with the house that you buy, as the monthly payments are less than for a comparable repayment mortgage. Obviously you have to repay the loan in the end, but an interest only mortgage gives you time to get the repayment together, and puts on less pressure initially.
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Loans
