Unit Trust Mortgages

How they work These are fairly new and in some ways similar to unit-linked low-cost endowment mortgages ). You don't link your mortgage to an insurance policy; instead you invest in a unit trust which is cashed in at the end of the mortgage term and used to repay the loan. During the mortgage term, your monthly payments are used to pay the interest on the mortgage.

Points to note Unit trust mortgages (like unit-linked endowment mortgages) are more risky than a normal endowment mortgage or a repayment mortgage because the price of your units in the unit trust can fall as well as rise. There might not be enough to pay off the mortgage at the end of the mortgage term if unit prices slump. But, unlike endowment mortgages, unit trust mortgages are very flexible. There are no penalties for cashing in early and nothing to stop you withdrawing your money to pay off the mortgage early. Also, less of your money goes in charges and tax with unit trusts than with unit-linked life insurance.

There's no built-in life insurance with a unit trust mortgage, so if you have dependants you'll need to take out separate protection-only life insurance ).

Verdict Unit-linked mortgages are only for those who can take the extra risk, and for many people unit trust mortgages will be a better choice than a unit-linked endowment mortgage.

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Pension Mortgages

How they work These work in a similar way to endowment mortgages, but instead of linking your mortgage to an insurance policy, you link it to a pension plan instead. Your monthly payments comprise just interest. At the same time, you make contributions to a pension plan. At the retirement date under the plan, you take part of the proceeds as a tax-free lump sum which you then use to pay off your mortgage. Pension plans are a very efficient way of saving because your contributions to the pension plan qualify for full income tax relief and the invested contributions grow tax-free.

Points... see: Pension Mortgages

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