Financial jargon made simple part 2

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At the end of last week I was explaining what I do when I first see clients and try to cut through the Jargon that we tend to use in the financial services industry.

     What I would like to talk about this time, is how you pay for the mortgage and I don’t mean by direct debit! Once you have worked out how much you can borrow based on your income and outgoings. We need to work out what’s affordable for you on a monthly basis.

     To begin with you’ll have to decide whether you want to set your mortgage up on a repayment basis also know as Capital and interest. This is the preferred way of paying for your mortgage. What it means is that if you take your mortgage over twenty five years then as the years go by you are repaying the mortgage so when you get to the final year of your mortgage term you have repaid your mortgage in full and own your property outright.

The other way is called interest only which was very popular a few years back. What interest only means is that if you borrow £100,000, for example, over twenty five years at the end of twenty five years you would still owe £100,000. Confused? Well what people used to do was use an investment vehicle such as an endowment which they would set up to run along side the mortgage, pay a certain amount a month and at the end of the twenty five years the endowment should have made at least £100,000 to pay the mortgage off in full. Of course in recent years this hasn’t happened and endowments aren’t used for this anymore.

     The other issue with repaying your mortgage is the amounts of years you take the mortgage over, obviously the longer you take it over the smaller the monthly payment, but you’ll pay more interest in the long run. So the best thing to do is work out a budget at the beginning of the process and fit your payment to this.

     Next time I will be talking about different schemes available to you for repaying your mortgage.

     ianminns@fsmail.net- 07810 872634 Please feel free to email or call me with any financial questions you have. I do not charge a fee for my advice and it is strictly confidential

 

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