Summary
Repayment mortgages
Advantages- Cheapest form of repayment method
Disadvantages
- No surplus available at end of mortgage term.
- Repayment term restarted each time an individual moves.
Endowment mortgages
Advantages- Prospect of a surplus at maturity.
- Policy may be reused on moving house.
- Low-cost start-up policies are available, reducing the cost in the early years.
Disadvantages
- Endowment mortgages are more expensive than repayment mortgages.
- Low-cost/low-start policies can be expensive over full life of the policy.
- Unit-linked repayment method requires the client to accept a degree of risk.
Pension mortgages
Advantages- Contributions attract tax relief.
- Tax advantaged growth within the fund, and the cash portion of proceeds on maturity is tax free.
Disadvantages
- If client becomes ineligible for a personal pension, or retirement annuity he/she will have to change to another repayment method.
- Part of the tax-free lump sum is used to meet the mortgage liability which reduces the size of the individual's retirement benefits.
- Contracts cannot be effected on a joint life basis.
- Separate assignable life cover is usually required.
PEP & ISA mortgages
Advantages- Tax-free growth.
- Freedom in choice of investments.
- Possibility of higher than average growth.
Disadvantages
- Inherent degree of risk.
- PEPs have been replaced by ISAs from April 1999, and ISA limits are lower.
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