Repayment mortgages

With a repayment mortgage the loan is certain to be repaid at the end of the term, as long as the repayments have been maintained. It is also more flexible than an endowment mortgage if the borrower gets into financial difficulties and wishes to suspend payments of both interest and capital. A repayment mortgage generally involves a lower monthly outlay than the endowment method when interest rates are relatively high, taking into account the cost of life cover. Repayment mortgages are therefore for borrowers who want a conservative approach, do not necessarily need life cover and may require flexibility.

Endowment mortgages

Endowment mortgages may be attractive for those who want to see a return on their repayments at the end of the mortgage term and are prepared to take the risk that the fund will not be enough to cover their capital debt. Borrowers should need life cover and may also want to add on inexpensive critical illness insurance as well.

Pension mortgages

Pension mortgages generally involve a higher monthly outlay than either of the above, though they are comparatively cheaper for the higher rate taxpayer. In general, they are more tax-efficient and should produce a higher return on investment than endowment mortgages. But they are more complicated to understand and the borrower has to qualify. They are therefore most likely to be suitable for the more sophisticated 40% tax paying borrower.

ISA mortgages

An ISA mortgage should provide a higher return than an equivalent endowment because of the tax advantages of an ISA. Furthermore, most borrowers qualify. The monthly outlay may well be lower than any of the above variants, and the ISA payments can be stopped and restarted with fewer financial penalties than many other products. An ISA might be considered a more volatile product than an endowment.