Know Your Loans When Searching for a Mortgage Quote

A Home Buying Article Contributed by Robert Scalia

Before You Even Start to Think about a Mortgage Quote

Before you even utter the words mortgage quote, you should be aware of the different types of loans that are out there when it comes to buying a home. Remember, you have to learn how to walk before you can run a marathon.

When it comes to mortgage quotes, there are two methods of repaying a mortgage: the repayment method and the interest-only method.

What is the Main Difference between the Two and How Will That Affect Your Mortgage Quote?

As a basic rule, the repayment method guarantees that you will pay off the loan at the end of its term. The interest-only method, on the other hand, means that you pay the lender interest during the term and only pay the outstanding capital back at the end of the term. In order to do this you use an investment vehicle to garner proceeds which will pay off the loan.

The repayment mortgage requires you to make a payment every month to your lender; a payment consisting of both the interest on your loan and a repayment of part of the capital. Therefore, the monthly repayments on your mortgage quote will be higher with an interest-only loan. But you are reducing your debt every month, so that should give you peace of mind. You will need to arrange life assurance,however, just to be sure that should you die before the end of the term, your mortgage will be paid off.

An interest-only mortgage is far more complicated when you're talking about a mortgage quote. Here, you need to make monthly payments of interest to your lender - both on your premiums for life insurance and into an investment vehicle that will ultimately result in you paying off your outstanding capital at the end of the term.

When you finally add all these payments up, you will likely find that interest-only payments will give you a slightly cheaper mortgage quote. But the risks are higher. The most important: There are simply no guarantees that you mortgage quote plan will pay off your outstanding mortgage debt.

When Seeking a Mortgage Quote, What Type of Investment Vehicles Should I Consider.

There are three main types of investment vehicles to be used to pay off the mortgage capital.

For starters, the endowment mortgage is one where you invest in an endowment policy with an insurance company. The hope is that these policies will grow over the years and be enough to pay off your mortgage, leaving you with a lump sum. Beware: You could also be left with a shortfall.

A pension mortgage, on the other hand, tales the 25 per cent lump sum from your pension fund to pay off the mortgage. But keep in mind that you can't get hold of this money until you are 50, and once you do get it, you cannot be guaranteed that it will be enough for you.

That's why an ISA mortgage quote might be the best for you. This is where you pay into an Individual Savings Account and hope that the fund grows enough to pay off the mortgage.