As a mortgage seems such a complex product, the choice of mortgage construction is often left to an advisor. We will be happy to explain in our initial advice that mortgages can in fact be clear and understandable. Our advisors will inform you in plain language about interest, repayment and life insurances. We can also advise you on mortgage protection insurances to cover the risk of invalidity or unemployment.
We trust that our assistance will enable you to make the right choice. Naturally we can advise on all popular forms of mortgage.
Forms of mortgage:
- Interest only mortgage
- Endowment mortgage
- Savings linked mortgage
- Investment linked mortgage
- Hybrid mortgage
- Linear and annuity mortgages
Interest only mortgage
You take out a loan and you only pay interest. No (compulsory) repayments are made to the bank. At the end of the term you repay the loan from private funds or you extend the term of the loan. Beware: your mortgage interest ceases to be tax deductible after 30 years.
Endowment/savings linked/hybrid/investment linked mortgage
No repayments are made with any of these mortgage forms during the loan term, similar to the interest only mortgage. On the final date however, you repay all or part of the loan with capital accrued during the loan term.
These mortgage forms are nearly always linked to a capital (life) insurance.
The term endowment mortgage is often used as a generic term for the above savings product, because you link a capital insurance to the loan. This can be a savings or investment insurance, but also an insurance with (annual) profit sharing. Depending on the selected cover, the final capital can be completely or partially guaranteed. The latter carries the risk of not being able to repay the complete mortgage.
The savings linked mortgage is linked to a capital insurance. As long as the mortgage interest is tax deductible, the tax benefits are maximised over the entire term, because you do not repay any of the loan until the final date. A savings linked mortgage carries a 100% guarantee of reaching the target capital at the end of the term.
Investment linked mortgages are available in two forms. You can invest through a life insurance policy or directly in shares/investment funds. If you invest through a life insurance policy, capital is accrued by investing the premiums in investment funds. If you invest without the insurance, the capital is accrued by putting monthly investments or a lump sum start capital directly into investment funds. Both forms carry the risk of not being able to repay the entire mortgage due to lower than expected fund performance.
The hybrid mortgage is a combination of savings and investments to build up the final capital.
Linear and annuity mortgage
You pay interest and loan repayments to the bank. This will result in your debt decreasing gradually during the term.
With an annuity mortgage your repayments are small to begin with and your interest is high, while at the end of the term your repayments are higher and your interest is less. The gross monthly mortgage costs stay the same, but the gradual decrease of interest reduces your tax benefits, causing your net cost to increase during the term.
With a linear mortgage you repay fixed monthly instalments. The interest will gradually decrease as a result of the decreasing debt, causing the mortgage costs to decrease during the loan term.