There are a range of reimbursement vehicles ready for people who have interest-only mortgages.
Endowments
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This type of endowment, sometimes known as a 'full endowment' is a form of life guarnatee policy taken out in conjunction with an interest only mortgage and allows you to pay monthly premiums which remain the same for the entire term of the loan. When the mortgage term expires and the balance becomes due you receive a tax free lump sum payment which is used to pay off your mortgage. In the past many of these endowments have performed well and have produced a sum, or surplus, which is greater than the mortgage balance to which you are also entitled, tax free. However, since these full endowments contribute guarantees relating to performance, they are highly expensive.
Low Cost Endowment
Not to be confused with a full endowment. There are no guarantees offered with this type of endowment and this type of reimbursement vehicle relies strictly on the carrying out of the investments. There is regularly a 'terminal bonus' at the maturity of the policy in order to make sure that there is adequate money to pay the outstanding mortgage. It does highlight a built in life guarnatee policy so that your mortgage will be paid if you die before the term of the loan expires.
Unlike the full endowment, it is the lack of a certify of the return on investments which makes this a 'low cost' endowment. Unfortunately, many people (typically older retirees) recently have been caught out with this type of reimbursement vehicle (recommended to them by their own mortgage lenders more often than not), causing them stress and anxiety straight through fear of not being able to pay their mortgage off.
Check these policies thought about if you are inspecting them and if there's anyone you don't understand get some independent financial advice.
Isa
Another form of reimbursement vehicle for interest only mortgages, the Isa mortgage was introduced relatively recently (1999). They work in a fairly similar manner to endowments in that investments are made into an Isa or private Savings list by the fund managers. As with endowments there are no guarantees of carrying out of the investments so the value of the fund may growth or decrease depending on the market.
Mortgage repayment Options For Interest Only Mortgages Calculate Mortgage Interest
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