The largest purchase which a person is likely to make in their life is when they buy a house. The high cost of a house requires most people to take out a mortgage to pay for it as this allows them to pay for the house over a long period of time. Monthly payments on a mortgage can still be high though and this is why many choose a mortgage where they only pay the interest. By doing this they still owe the cost of the house at the end however an increase in property value means that many can afford to buy it out right.
So that people paid off part or all of their mortgage as well as the interest, an interest-only mortgage would usually be coupled together with an endowment plan. An endowment plan requires the mortgage holder to pay a further monthly amount but this amount is then placed in different investments which are intended to earn money for them. The idea is that the money earned by the investment opportunities will pay for the outstanding value of the house.
The problem for a lot of people now though is that the endowment policy which they took out alongside the interest-only mortgage is not performing as it was intended to. Bonds have not been paying out nearly enough for people to pay off any significant amount of the value of their home and at the same time the economy has meant that the shares which people have had have actually not done well at all.
Due to the investment options from the accompanying endowment not generating as much money as expected a lot of people are unable to afford to buy their property at the end of the agreed term. The other factor in the person buying a house is the rising value of the property but this has also not been as much as expected. House values have even dropped at certain points leaving some people in debt.
For the huge number of people in the UK who have this sort of mortgage this unfortunately means that they may lose their home at the end of the term. For a lot of people this either means taking out a new mortgage or for some that isn't an option and they face losing their house entirely.
So that people paid off part or all of their mortgage as well as the interest, an interest-only mortgage would usually be coupled together with an endowment plan. An endowment plan requires the mortgage holder to pay a further monthly amount but this amount is then placed in different investments which are intended to earn money for them. The idea is that the money earned by the investment opportunities will pay for the outstanding value of the house.
The problem for a lot of people now though is that the endowment policy which they took out alongside the interest-only mortgage is not performing as it was intended to. Bonds have not been paying out nearly enough for people to pay off any significant amount of the value of their home and at the same time the economy has meant that the shares which people have had have actually not done well at all.
Due to the investment options from the accompanying endowment not generating as much money as expected a lot of people are unable to afford to buy their property at the end of the agreed term. The other factor in the person buying a house is the rising value of the property but this has also not been as much as expected. House values have even dropped at certain points leaving some people in debt.
For the huge number of people in the UK who have this sort of mortgage this unfortunately means that they may lose their home at the end of the term. For a lot of people this either means taking out a new mortgage or for some that isn't an option and they face losing their house entirely.
