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Repayment mortgage

If you choose this method you make one payment to the Society each month. This payment is made up of capital and interest. Using this method you gradually pay off the amount borrowed plus the interest, until at the end of the mortgage term (usually a maximum of 25 years) you will have completely paid off the loan. Borrowers choosing the repayment method are strongly recommended to take out a term assurance policy so that in the event of death, the mortgage can be paid off. This is especially important for your dependant relatives.

Endowment mortgage

If you choose this method, you make two payments each month - one to the Society and one to an assurance company. The payment you make to the Society is sufficient to cover the interest on the amount borrowed, whilst the payment to the assurance company is invested. The theory is that this investment should grow to such an extent that at the end of the mortgage term (again usually 25 years) there is sufficient to pay off your mortgage and possibly to provide you with a tax free lump sum. The policy automatically includes a level of life cover.

Conversely, if the endowment policy does not perform as well as expected, you may be left with a shortfall at the end of the mortgage term.

Pension mortgage

This may be chosen by people who are either self-employed or in regular employment but not part of a company pension scheme. Once again you make two monthly payments - one to the lender to cover the interest charged on your mortgage and the other into a pension scheme administered by an assurance company. They invest your monthly contributions in a tax free fund and the aim is that at the end of the term (on this occasion the term may well be for more than 25 years) the investment has grown to such an extent that you can pay off your mortgage, and be provided with a pension on retirement.

Conversely, if the pension scheme does not perform as well as expected, you may be left with a shortfall at the end of the mortgage term. You must ensure the pension includes life cover or that you have alternative arrangements.

ISA Linked mortgage

An ISA (Individual Savings Account) is a form of investment that enjoys tax benefits - growth is tax free. Once again you make two monthly payments - one to the Society to cover the interest charged on the amount borrowed, and the other (which may be an annual lump sum) into the ISA. If the ISA performs well you should be left with a surplus after the mortgage has been repaid or you may even be able to pay the loan off years in advance of the expected date. You must ensure the scheme includes life cover or that you have alternative arrangements.

Conversely, if the ISA does not perform as well as expected, you may be left with a shortfall at the end of the mortgage term.

Interest Only mortgage

If you know that you are likely to be in the fortunate position of paying your mortgage off within a few years (perhaps you have an inheritance coming to you) you may wish to consider an Interest Only mortgage. With an Interest Only mortgage you make one monthly payment to the Society to cover the interest being charged and of course, as you are not repaying any of the capital you have borrowed, the balance you owe to the Society stays the same. If you choose this method the Society will require you to confirm in writing how you intend to repay the capital.

Lifetime Mortgages

Equity is the difference between any mortgage or loans you have and the value of your home. A Lifetime Mortgage is a way of "unlocking" the value of your property, without having to move home. It is used mostly by older home-owners who have either paid off their mortgage loans altogether, or have only a small amount left to pay.

You can release the value of your home to give yourself a lump sum which could be used to supplement your income, to improve or maintain your home or, indeed, even to pay for that special holiday that you always promised yourself.

If you sell the property before you die, you repay the money you borrowed and the remaining equity is yours as with any normal mortgage.

If you live in the property until you die, the money from its sale is used to repay your mortgage before anything left over is paid to your beneficiaries.

Like everything in life, these schemes can be of real benefit to the individual, but the financial and legal implications need to be fully understood before committing oneself to any particular scheme. As would any responsible lender, we strongly recommend that anyone who enters into a Lifetime Mortgage scheme should obtain independent legal and financial advice prior to signing any documentation.

This is a Lifetime Mortgage. To understand the features and risks, ask for a personalised illustration.