Interest Only and Endowment Mortgages

A mortgage is security for a loan in the form of the provision of a right in property, such as land or buildings, or (more commonly) a sum of money borrowed for which property is the security.

In everyday terms a mortgage is an amount of money borrowed to buy a house (or some land, a business, or a boat, etc) in exchange for giving the lender some rights in the property.  Typically, if terms of the loan are not met, then the lender has the right to sell the property to recover the debt.

Mortgages are usually long term arrangements – 15, 25, 50 years for instance.  The length of the mortgage is called the “mortgage term” it is the amount of time between when the loan is originally made and when it is expected to be fully repaid.

Interest Only Mortgages and Endowment Mortgages are mortgages where the borrower only pays the interest due during the term of the mortgage and repays none of the capital borrowed until completion of the mortgage term.  Some other means - such as an endowment policy maturing or a lottery win (not a good plan) - is then used to pay off the capital at the end of the mortgage.

Interest Only Mortgages usually have a higher interest rate because they are a higher risk to the lender.  Because they don't require repayment of the capital during the mortgage, the monthly payments are lower.

However, if the means of paying off the mortgage does not perform as expected, there may be a large amount of capital still to be paid when the mortgage term ends.

Mortgage calculators allow you to work out what a specific mortgage will cost you.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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