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Types of Mortgage Available in the Credit Crunch

posted October 13, 2009 - 11:39am
Types of Mortgage Available in the Credit Crunch
There are two types of mortgage available (subject to status) and nowadays there is generally a requirement for a 15% deposit - for example £15,000 is needed as a deposit on a property with a value of £100,000.
 
  • REPAYMENT MORTGAGES
You repay a monthly amount which covers a proportion of the amount you borrowed to buy your property (known as the CAPITAL AMOUNT) and the accrued interest. 
 
The advantages of a Repayment Mortgage are that at the end of the term of the Mortgage (20 or 25 years for example) you will have paid off the entire amount and own your property 100%. You can (subject to verification of individual mortgages) pay off lump sums if the circumstances arise (inheritance or winning the lottery for example) and therby reduce future monthly payments. Sometimes (NOT ALWAYS CHECK THE SMALL PRINT) you will not be required to take out life assurance to cover repayments in the event of your premature death, sickness or accidental injury. This can reduce the amount you pay per month.
 
The disadvantages can be built in financial penalties for making unscheduled lump sum payments (inheritance or lottery). You’ll be paying off more interest than the capital sum at the start of the mortgage term. If you don’t have life insurance and you die before expected the property will have to be sold to pay back the remaining debt (capital amount).
 
  • INTEREST ONLY MORTGAGES
With this type of mortgage you only pay the interest accrued. The capital amount is paid off with ISAs, final pension lump sums or endowment policies. Other repayment vehicles exist but these are often specialist and like those traditional vehicles (ISAs or saving schemes, pensions and endowments) the value of these can reduce as well as rise. If the value does reduce holders of these mortgages can find themselves in a position in which they have to sell the property to finance the debt.   
Author: AndAnotherThing2
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