Methods
of Mortgage Payment
Interest
only has been a popular method of repaying a mortgage
monthly bill but on it's own does not repay the debt..
The alternative is capital repayment where interest is
paid along with a proportion of the debt.
Monthly mortgage interest payments mean the actual amount
being borrowed is not being paid, hence the name interest
only. So there would have to be a plan in place so the
debt of the loan can be paid.
A
few years ago this problem was commonly addressed by paying
the debt off with an investment vechile, typically an
endowment policy. This often had attached to it a cheaper
form of life insurance. The endowment was paid monthly
separately from the mortgage and over time the idea was
the investment to grow to a sum over and above the total
debt.
At times this was a very popular scheme. However in the
crash of 2000, the growth of investments was severely
effect by falling stock markets and many policies were
under threat not to hit their target.
Interest
only mortgages also were popular to run along side a pension
but again falls in the stock market diminished their potential
payout. PEP and ISA would probably fall under the same
banner. The problem being that monthly payments for the
investment where high.
Some
customers have taken interest only with the intention
to sell and down size. Or as in the case of buy to lets
hoping for growth in the equity of the property. The trouble
with all these methods is one has to be mindful that the
exact lump sum at the end of the term is unknown.
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