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Deciding to own a home is the easy part but which mortgage do you choose without encountering debt problems?

Banks and building societies are repeatedly tweaking and increasing their range of mortgages to the point where there are so many to choose from, it is impossible to make an easy choice.

To avoid the perils of falling into debt, your prime focus when looking at mortgages should be how you pay back the sum of money that is loaned to you and how much interest you pay on that capital. And you need to also consider your long-term earnings and if you can meet those repayments even in the event of financial difficulty.

Three mortages you should know about

A repayment mortgage will allow you to pay off a small amount of the interest and capital each month. When the mortgage has drawn to an end, you will have paid back everything that you borrowed in full. This is one of the less risky mortgages but if you are unable to meet the repayments every month, you could put your home on the line.

With an endowment mortgage, the customer only repays the interest on the sum borrowed. However, this mortgage also involves making regular payments to an endowment policy. This will allow you to find the funds to be able to pay for the outstanding capital when the interest has been settled.

Interest only mortgages are very popular with buy to let investors and those who are buying their home for the first time as they allow them to simply repay the interest on the loan and worry about the capital later on. This is more dangerous risky, as finding the money to repay the pending capital can be a worrying debt.

As a customer only repays interest on the capital borrowed, great savings can be made in comparison to an ordinary repayment loan. The objective is that the investment made through the endowment policy will be sufficient to repay the mortgage at the end of the term and possibly create a cash surplus.

The main thing to remember with any loan is that you do have to pay interest and a mortgage is a loan. Do not fall into debt by taking on more credit than you can handle or that dream home could turn into a nightmare.

Zen And The Art Of Personal Finance


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