Repayment Options
Repayment
mortgages |
Term | Advantages
| Disadvantages
Disdvantages Of Repayment Mortgages
Repayment mortgages offer no possibility of having a lump
sum to look forward to at the end of the mortgage term.
Although overpayments can lead to an early finish to your
mortgage term therefore leaving you with more disposable
income, some borrowers like the possibility of a sizeable
tax-free cash windfall at the end of your mortgage term.
Unlike some investments that are used with interest-only
mortgages, there is no built in life assurance cover with
a repayment mortgage. Many lenders recommend that you arrange
decreasing term assurance to cover the outstanding capital
for the life of the loan. This will be a separate expense
that you will have to cater for. Arranging this separately
means that you have to go through the added hassle of finding
a suitable life policy and provider.
If you move house after a few years, you will often have
to repay your existing loan and take out a new one. Since
most of the repayments in the early years consist of interest
on the existing balance, not a huge amount of capital will
have been repaid from the original debt. Many people end
up taking out another twenty-five year loan, especially
if you are trading up to a higher value property. This once
again puts you at the start of the repayment schedule, meaning
that the bulk of your repayments are once again being taken
up with servicing the interest bill on the mortgage debt.
If you move house several times, you can start to get the
feeling that you are not making any inroads into your debt
and will never see the end of your mortgage term.
To get round this problem, some lenders now offer loans
that are portable. This means that you do not have to repay
the mortgage and take out a new one each time you move house.
Provided that you do not need to increase your borrowings
when you move, you can take your original loan with you,
securing it against the new property. This allows you to
maintain your position on the repayment schedule, avoid
wasting the inroads that you have made into reducing your
debt, thereby making it easier to keep the same date for
paying off your mortgage without having to alter your repayments.
