All our mortgage products are available as interest-only mortgages. If you choose the interest-only repayment method, these are some of the options you will need to consider to repay the loan.
Endowment policies
The endowment policy serves two purposes. Firstly, your monthly endowment premiums - which you pay direct to the insurance company running your endowment policy - are invested on your behalf. After a given period, often 25 years, the policy matures and the proceeds are used to repay your lender.
It's important that you make sure the policy you choose will generate enough money to pay off your loan, so be prepared to check how it is performing on a regular basis, particularly in the last few years of your mortgage.
Secondly, an endowment policy also provides you with life insurance cover. If you should die before the policy ends, the insurance company will pay the sum known as the minimum death benefit to us. This will be shown on your policy.
The Association of British Insurers and its members have agreed a Code of Practice to ensure that formal reviews of endowment mortgage policies are carried out. Under the ABI Code, insurers will tell you if a shortfall is likely to arise where the policy was bought with the intention of paying off all or part of the mortgage.
Pensions
You may wish to build your financial plans around a personal pension. The mortgage is eventually repaid using the tax free lump sum which is available with a personal pension at retirement, though this is not guaranteed.
Just as with an endowment, you must ensure that your arrangements are sufficient to repay us when the mortgage term ends. Should you die before the end of that term, your pension might have life cover built in to cover the cost of repaying the loan. If your pension does not have life cover built in, you should ensure that you have enough life cover to protect your loan during the mortgage term.
ISAs
Interest-only mortgages built around an Individual Savings Account (ISA) are also popular.
The mortgage is repaid using the cash sum built up in the ISA, although you'll need to make sure that you are building up a large enough sum.
You should ensure that you have adequate life cover to protect your loan during the mortgage term, if this option is not included in your ISA.
PEPs
You may also use an existing Personal Equity Plan (PEP) to repay your mortgage. If you are planning to use an existing PEP you should bear in mind that you can no longer add to it, so you may need to consider an additional form of investment.
Other options
In some circumstances we will approve interest-only mortgages without needing to know exactly what type of investment arrangements you have made. Of course, you must still make the right kind of provision to repay the loan when the mortgage term ends.
Your obligations
It is important to make sure you have the right kind of investment in place to eventually repay your loan. We strongly recommend that you seek financial advice before making a final decision. As we do not sell regulated investment products, we cannot give you any advice on the type of investment you should choose.
Financial Advice
We do not sell or advise on regulated investment products. We have, however, chosen to refer customers exclusively to Legal & General to ensure they receive a full advisory service, and this service is available through our branch network.
Your mortgage payment does not include an endowment, pension, ISA contributions or premiums for any term assurance or life insurance policies.
Yorkshire Building Society is one of the largest building societies in the UK. We offer a range of financial products and services including: savings & investment accounts, insurance products, credit cards, loans, mortgages and more.
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Yorkshire Building Society is authorised and regulated by the Financial Services Authority (FSA).
