Investments can go down as well as up and past performance is no guarantee of future returns.
The following investments have been popular choices for people with interest only mortgages.
Endowment policies:
These policies are run mainly by insurance companies and friendly societies. They are regarded as low to medium risk investments. The fund managers invest on the stock market, in property and in fixed interest investments. Policies can be unit linked or with profits. Unit linked means that a value is calculated, usually daily which directly relates to the value of the underlying fund. Unit prices can be followed in the broadsheet newspapers.
A 'with profits' policy entitles you to a share in the profits of the insurance company. Issuing companies vary their annual bonus according to investment performance and anticipated future investment conditions. The variance in annual bonus has historically been small which provides a degree of security to the policyholder. A terminal bonus is also normally declared at the end of the term. Life assurance is included in the contract which will pay off the mortgage in the event of death. Unit trusts: Predominantly stock market investments where your money is 'pooled' together with other investors in a fund which may be managed or unmanaged (tracker).
There is a risk element to your capital as unit prices can fall as well as rise, and a periodic review would be recommended to ensure that the fund performance is adequate. This type of fund is quite flexible and tax free benefits are available if taken out within a ISA.
Pensions:
If you are eligible for a personal pension, you can opt to use part of your pension fund to clear your mortgage. This will obviously reduce the amount that you will have available to go towards your pension, however you will receive full income tax relief on your contributions.
This means that a higher rate taxpayer paying £100 per month into a pension fund will in fact only contribute £60 per month, the balance being paid by the inland revenue. There are many different types of pension fund available and we would be happy to advise on this subject.
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