Types of UK Mortgages
There are several types of mortgages to think of.
The most common mortgages are either repayment mortgages or interest only mortgages. In repayment mortgages, you pay off a little bit of the balance/capital and a little bit of interest at each monthly payment. At about twenty five years, you own the property outright. Many mortgage companies will allow you to pay off a little more of the interest during each monthly payment. You will then pay off the payments at a reduced interest earlier than the twenty five years.
With interest only mortgage, each monthly payment only pays off the interest on the loan. This reduces your monthly payments but at the 25 year mark, you must pay off the capital on the property. Hopefully, you will also be paying into an investment fund that will pay off the capital when the time for the repayment of capital is due. If you have invested well, you may have extra money at the end. If the investment didn’t pay off as well as expected, you will have to pay off the difference.
An endowment mortgage is like an interest only mortgage. The biggest difference is that the entire mortgage is wrapped up in a combination of savings, life insurance and endowments. The added life assurance makes certain that the entire balance is paid off if you should die before it is repaid. These have a poorer reputation because many of the payments have fallen short at the time the loan matures. This is because the interest rates rise out of proportion to the interest you are paying on the mortgage.