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Here at money tips we believe in informing our users about
the many types of mortgages that are available on the market.
Below you will find information on some of the mortgages that
are available now.
Interest only mortgages are what they sound like – a
mortgage whose repayments are only offset against the interest
that is due on the loan and not against the capital amount
of debt.
Why would anybody just pay off the interest on a mortgage?
On the face of it you might think that, but interest only
mortgages can work out substantially cheaper than repayment
mortgages and have to be supported by some form of investment
product that will eventually pay off the mortgage when it’s
term runs out. For some, this type of mortgage arrangement
works better, because they do not intend to stay in the same
house for long, so do not want to begin paying off repayment
mortgages each time they move. The investment product mentioned
above is a stand alone product to the interest only mortgage
in most cases, so is not dependent on one staying in the same
house or having the same mortgage lender for that matter.
Repayment mortgages pay off both the interest and capital
of a mortgage loan. This form of mortgage is straight forward
to understand and a lot of people like it because they know
where they stand.
An additional investment product, to pay off the mortgage,
is not required in this instance which may be a good thing
because you will not be investing in the stock market, but
on the other hand it may restrict your investment growth potential.
One thing to think about though, is that if you do intend
to move home, it will probably mean re-arranging another twenty
five year mortgages (this term is usually required in order
keep repayments at an affordable level), which will increase
the amount of interest you are paying over time.
Mortgage Protection Insurance
There are two types of mortgage protection that need to be
covered here. Firstly, there is term insurance, which is where
the entirety of the outstanding mortgage is covered so that
should you die during a specified time period, your dependants
will still be able to live in the property as the benefits
from the policy will be paid out to pay off the mortgage.
Every month the amount of your cover will decrease as you
are paying off more and more of your mortgage amount. This
is why this type of mortgage protection is call decreasing
term insurance. Because of the decreasing amount of cover
and the fact that many policies expire without ever having
to pay out you will find that the premiums for decreasing
term insurance are really quite small.
In order to find the best product for decreasing term insurance
you are best advised to use an insurance broker, and preferably
online. Independent insurance brokers or financial advisors
should be able to offer you a view of the whole of the market
rather than just a few products, and should be able to help
you to find the best product for your circumstances. The reason
that you should approach the brokers online is that often
it is the cheapest way to deal with them as you are inputting
information which they would have to re-key if you did it
any other way. The drop in admin costs should be reflected
in lower premiums.
The other type of mortgage protection is Mortgage payment
protection insurance, also called MPPI. What this does is
to cover your mortgage payments should you find yourself not
able to work due to redundancy, or ill health or an accident.
Some people think that this is the same thing as Accident,
Sickness and Unemployment (ASU) insurance but in fact they
are different as MPPI covers payments on a specific financial
product (in this case a mortgage) and ASU covers you for a
certain amount each month. The amount that ASU and MPPI covers
you for would include not just your mortgage payments but
also other living expenses and financial commitments such
as insurance, other loans and even food.
But why would you need to cover your mortgage payments? Surely
you’ve already worked out what you can afford
before you took out the mortgage? Well, what if you
fell ill or had an accident or were made redundant.
Where do you get the income from to pay for your credit
cards, your loan payments as well as your mortgage payments.
Wouldn’t it be better if you could have the peace
of mind that if something goes wrong you can have your
payments covered? If yes, then mortgage protection is
for you.
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