What do you do if you are looking to buy a house? You sift through a series of mortgage loans. What is the best kind of mortgage loan? That would be based on how much you are intending to borrow and on the rate of interest that you would be able to afford. Generally speaking, the greater the period of the loan, the lower will be the interest rate that you will be charged.
With regards to the various types of mortgages, there are two major types. On the one hand we have the repayment-only mortgages. On the other hand, we have the interest-only mortgages. Why don’t I just explain the two types to you?
Now, repayment-only mortgages consist of two types of repayments. When you choose to get a repayment-only mortgage, you will be paying off monthly installments of both capital and interest. Sometimes you will not be able to help feeling as though you are shelling out far more than you would in other types of mortgages. Well, my advice to you would be not to worry too much about it. The only reason that you seem to be paying more is because you are paying off not just the interest but also parts of the capital.
So now let us talk about interest-only loans. How does this work? Well, if you had been following the mortgage markets a few decades ago, you would have heard of the notion of endowment mortgages. If you are unaware as to what an endowment mortgage is, try reading on.
An endowment mortgage is a type of interest-only mortgage where the borrower is required to invest in an endowment fund or some other kind of life assurance policy. Thereafter, the borrower has to pay off only the interest that accrues on the mortgage. The capital is repaid by the endowment fund. Of course, this has its bad points, for the fund’s performance is affected by market conditions. In the case of the endowment mortgages in the United Kingdom, these flaws were revealed when the markets collapsed in the 1990s. During that period, a large number of mortgagers suffered because their funds performed badly, leading to losses for all.
Endowment mortgages have ceased to be popular in the world of today. However, other kinds of more stable, interest-only mortgages are still availed of. Would an interest-only or a repayment mortgage suit you best? In my opinion, that is simply a matter of preference. Both types have their own pros and cons. Make sure that you do thorough research of the mortgage markets before making your final decision.