Level vs. decreasing term cover: Choose your insurance policy according to your mortgage type

This requires a down payment and monthly payments that decrease the amount of the loan over time. At the end of the mortgage term, the entire mortgage loan is expected to be paid in full.

• Guarantees that the loan is fully paid at the end of the mortgage term as long as you pay the monthly amortizations regularly
• Decreased risk of negative equity since the loan is decreased over time
• Increased equity (provided that there are no drops in property value). Remortgages or new loans are easier to get because of your positive credit record

• You risk losing out on the down payments and monthly payments if the property is foreclosed or you need to move again during the first few years of the mortgage.
• You risk losing the property through foreclosure if you fail to meet the monthly payments.

The loan is provided on the basis that it will be paid back with interest. What happens is that you pay monthly interest to the mortgage lender while securing a way for you to invest that will eventually accumulate enough money to pay for the principal. The investment plan can be in the form of:

• An endowment
• An individual savings plan
• A pension

The mortgage lender does not have to be the provider of the investment plan.

• You have the freedom to choose the investment vehicle that is most advantageous to you, considering your situation
• If you may a good investment, you will earn more than the amount you need to pay to the lender

• There is a risk that your investment plan does not grow enough so that the amount you have accumulated is smaller than the actual amount of the mortgage.
• There may be penalties for some form of investments if you default on the premiums
• The level of debt you have stays the same throughout the term of the mortgage

This is essentially an interest only mortgage, which allows you to pay just the interest on the loan and the entire principal amount at the end of the mortgage term. This makes use of an endowment life policy that covers the person insured’s life and also accrues cash values. When the mortgage term (and the policy term) ends, the endowment paid out will be used to pay the principal.

• If the investments on the cash values do well, you will not only be able to pay off the principal, you may also have some extra money that will be paid out as a lump sum at the end of the mortgage term.
• You may be able to get cheaper life insurance cover as opposed to buying a separate life insurance policy.
• The mortgage is transferrable to another property.

• Endowment life policies are more expensive compared to a term life policy because of the cash values.
• You risk facing a shortfall on the principal amount if the investments do not do well.
• Endowment life policies are not as flexible, where you may face penalties if you choose to cancel the policy.

This is a form of interest-only mortgage linked with an individual savings account, where the account is a stock market investment. With the investments made, the account is expected to collect enough to be able to pay off the principal.

• If the investments do well, you will not only be able to pay off the principal, you may also have some extra money that will be paid out as a lump sum at the end of the mortgage term.
• For taxpayers who are under a higher rate tax bracket, an ISA would be potentially tax efficient
• You get to choose the type of investment the ISA will make, based on the level of risk you are willing to take

• You risk facing a shortfall on the principal amount if the investments do not do well.
• You risk losing the property through foreclosure if you fail to meet the monthly payments.

This is a form of interest only mortgage linked with personal pension being used as the investment plan. The personal pension fund is invested in the stock market and its earnings are tax-free. When the pension fund matures, it is used to pay off the mortgage.

• If the investments do well, you will not only be able to pay off the principal, you may also have some extra money that will be paid out as a lump sum at the end of the mortgage term.
• You enjoy up to 40% tax relief, particularly if you belong to the higher tax bracket.

• You risk facing a shortfall on the principal amount if the investments do not do well.
• A pension plan should ideally be used to fund your retirement, but with this type of mortgage and investment plan, you cannot use the lump sum for other needs as long as the principal is not fully paid up