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Types of mortgages
There are several types of mortgage available. The most
common are:-
· repayment mortgage. This
is a mortgage in which the capital borrowed is repaid
gradually over the period of the loan. The capital is
paid in monthly instalments together with an amount
of interest. The amount of capital which is repaid gradually
increases over the years while the amount of interest
goes down
· endowment mortgage. This
mortgage consists of two parts: the loan from the lender
and an endowment policy taken out with an insurance
company. You pay interest on the loan in monthly instalments
to the lender but do not actually pay off any of the
loan. The endowment policy is paid monthly to the insurance
company.
At the end of the period of the mortgage, the policy
matures and produces a lump sum which should pay off
the loan to the lender and may, in some circumstances,
produce an additional lump sum. There is a risk that
the endowment policy will not be worth enough to pay
off the loan at the end of the mortgage period. If you
have been told by your endowment provider that your
policy will not be enough to pay off your loan, you
should seek independent financial advice.
You can get information about dealing with endowment
policies from the Financial Services Authority (FSA)
at www.fsa.gov.uk/consumer
· pension mortgage. This mortgage
is primarily for self-employed people. The monthly payments
consist of interest payments on the loan and contributions
to a pension scheme. When the borrower retires, there
is a lump sum to pay off the loan and a pension
· ISA mortgage. With an ISA
mortgage, you pay interest to the lender, and contributions
to an Individual Savings Account (ISA) which should
pay off the loan
· Islamic mortgage. This is
a mortgage in which none of the monthly payments includes
interest. Instead, the lender makes a charge for lending
you the capital to buy your property which can be recovered
in one of a number of different ways, for example, by
charging you rent.
Where to get a mortgage from
A mortgage could be available from a number of different
sources. Some of the available options are:-
· building societies
· banks
· insurance companies. They only provide endowment
mortgages (see above)
· large building companies might arrange mortgages
on their own new-build homes
· finance houses
· specialised mortgage companies.
If you intend getting a mortgage you should make sure
you investigate the different options available. If
in doubt, you may wish to consult an independent financial
adviser.
Using a broker to get a mortgage
Instead of going directly to a lender such as a building
society for a mortgage, a broker could be used. A broker
may be an estate agent, or a mortgage or insurance broker.
They will act as an agent to introduce people to a source
of mortgage loan to help them buy a home.
A broker may be used when it could be difficult obtaining
a mortgage directly from a lender, for example:-
· the mortgage required is particularly large
· the property is unusual in some way
· more than two people wish to jointly purchase
the home
· the applicant is self-employed and their income
fluctuates. There are rules about how much a broker
can charge for their services.
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