Which mortgage to choose? Pay now pay later

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Which mortgage to choose? Pay now pay later

A man who claimed to be able to forecast the future by the stars was once asked 'Well, tell me who's going to be the winner in the 3.30 at Doncaster this Saturday' and he said he couldn't.

Accused of being a fake, he explained that he'd have to cast horoscopes of all the horses, all the riders, all the trainers, owners, punters -and even then he wouldn't be sure he'd taken every material fact into account, or how to weight the results.

We're really in much the same position with endowment policies. The range of knowledge that you would have to have would be so vast that, even if you could see into the future, to all intents and purposes it would be impossible.

There are two factors that may help to swing the balance in favour of endowments. At present (as the cost comparisons earlier in the section show) the constant net repayment version is marginally cheaper than the low-cost endowment mortgage. But the repayment mortgage does not include any life assurance.

If you are married -and certainly if you have any dependants -it is essential to have at least the minimum term assurance to pay off the outstanding mortgage loan should you die before completion of the mortgage. If you're single without dependants, however, it's not so essential.

For a man aged 30 next birthday, with a wife two years younger, this insurance will add an extra £13 or so per month to the cost of a £125,000 mortgage.

So the difference between the two methods, in terms of cost per month, could literally be pennies: indeed, depending on the life company chosen, it could actually work out cheaper to take out a low-cost endowment.

And in that case, however small the eventual surplus may turn out to be, the prospect of something at the end of 25 years, compared to the certainty of nothing, makes the case for an endowment very strong.

The second factor in favour of an endowment policy, which should not be forgotten, is that it may prove useful in later years as providing you with another potential lender if you need to borrow extra amounts at any time.

So far, we have looked at current cost and speculated on future returns. But there's the 'middle bit' of the mortgage to think about, too. Suppose you are buying your first property: you can expect to be there perhaps five years before you move to another place. Assuming you have taken out a mortgage of £120,000 to buy it, at the end of five years on a constant net repayment mortgage you'll have paid back a total of £11,630 at 111/a%.

Read:100 mortgages uk

Which mortgage to choose? Part two

The endowment mortgage figures are only approximate. They are based on a number of quotations from different life companies for a man aged 30 The older you are, the more it will cost. For example, at age 40, the low-cost version is likely to be around £18.09.

As we pointed out in Section 5, the cost of a gross profile mortgage rises each year. In year 15 of the mortgage, assuming nothing else has changed, the position is as follows. Whatever the interest rate, if one assumes for the moment that you are looking for a 125000 mortgage, the difference between the first three and the full with-profits endowment mortgage is going to emerge as around 150 to 160 a month.

Unless you are very rich, therefore, . . .... see: Which mortgage to choose? Part two

Current Mortgage Offers

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    Finding the right mortgage can be stressful, but we’re here to help you every step of the way.

    Even if you have no proof of income, poor credit rating or facing repossession of your home, we can normally say YES (even if the high street lenders have said NO)!

    Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage. The overall cost for comparison is 7.9% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. There will be a fee for mortgage advice. The precise amount will depend upon your circumstances but our average fee is 2.36% of the loan value. We are authorised and regulated by the Financial Services Authority for regulated mortgage and non-investment insurance contracts.