9. Methods of Repayment Flashcards
Endowment policy
Type of insurance designed to pay a lump sum at the end of the term usually taken out alongside an interest only mortgage to act as a repayment vehicle
Capital & interest mortgages
Pay capital aswell as interest - mortgage is paid off at the end of the term
Interest only mortgages
Just pay interest, will have to have repayment vehicle to pay off capital at the end of the term
Without profit endowment
Guarantees to pay off mortgage at the end of the term
No investment element
Amount payable is same as the loan
Full with-profits endowment
Life insurance where the policy holder has a share in the profits
Terminal bonus
Part of the full with profits endowment
One off payment to the policyholder at the end of term or death
Reversionary bonus
Part of the full with profits endowment
Paid when policy is surrended usually % of basic sum assured
Basic sum assured
Part of full with profits endowment
Minimum guarantee paid to policy holder - equal to value of mortgage
Paid end of term or death
Low cost with-profits endowment
Similar to full with profits
Insurance covers % of basic sum assured usually 30%
Relies of bonuses to pay the remaining if you don’t die
Unit linked policies
Policy holder pays monthly premiums to purchase units in investment funds run by life insurance company
Pays off mortgage when you die
Personal pension plan
Product to pay off interest only loan
Tax relief
Can only be taken age 55
Stakeholder pension plan
Same as personal pension plan with added protection
Max contribution quarterly is £20
Unit trusts
Collective investment medium I.e pooling the money of many small investments to speak risk
Can be used to pay off mortgage
Set up under a trust. 1 company (Unit trust manager) agrees to manage the trust for a fee. Another company (trustees) agrees to hold the investment
Liable for CGT
Open-Ended Investment Companies (OEICs)
Similar to unit trust investors pool their investments to spread risk
Ltd companies/investors buy shares in the company
Open ended so shares can be created and cancelled
Liable for CGT
