Mortgage Guide
Interest only
mortgage - Is where you only pay off the interest
element of the loan that accrues and not the capital value
of the house. To repay the capital of the loan you will
usually make a payment in to some sort of investment account
to allow for the capital payment at the end of the mortgage,
e,g endowment, ISA or Pension.
The advantages
of an interest only mortgage are that if the proceeds of the
investment vehicles exceed the amount required to repay the
mortgage, then this is received as a cash lump sum by the
borrower at the end of the term.
The disadvantages
of an interest only mortgage are just the reverse if the
proceeds of the repayment vehicle / plan don't achieve the
amount required, then there will be a shortfall at the end
of the term. The borrower still remains liable for any
shortfall on the mortgage hence the outstanding balance will
need to be paid off from other resources. Regular checking
of the policy fund itself by the borrower and the lender
should minimise any risk. If the plan is not reaching its
expected target, the borrower can increase payments into the
policy or invest in another product to cover any anticipated
shortfall.
Overview
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