Tim indicated that he was still finalising his negotiations for the purchase and anticipated that the company would need to borrow pounds 75,000 which, if all went to plan, would be repaid after 15 years.There are a number of different types of life assurance policy that Tim could use to cover this risk. All, however, provide a lump sum on the death of the life assured, in exchange for a regular premium payment I explained the option of a term assurance policy. To protect its position, however, in addition to a personal guarantee, it would require a loan protection policy to be effected. Tim was not clear what the bank meant.What the bank requires is a life assurance policy to be put in place on Tim’s life. In the event of his premature death the funds would be available to repay the outstanding loan. This is is often required when the lender wishes to strengthen its own security, or it is lending to a new or small company.The benefits of having such an arrangement are that should Tim die before the loan is repaid, his company would have the funds avail able to clear the loan, helping it to continue trading. The bank will not be forced to call on Tim’s personal guarantee of the loan to make up any shortfall – thereby enabling his estate to be left intact for the beneficiaries of his will.Such policies are appropriate to all types of business structure, be they sole traders, partnerships or companies, where there are loans from a financial institution.

OFTEN THE work of a financial planner extends beyond advising simply on personal financial planning matters Many clients run their own businesses. This means that as well as having the typical personal financial planning issues we all face, they also have to deal with their company’s corporate financial planning This is illustrated by the meeting I recently had with Tim

Tim has been a client of ours for a number of years. Our previous meetings had focused on starting his retirement planning and building a portfolio of investments.
At a recent review meeting, Tim explained that the opportunity had arisen for his company to purchase a similar local computer company. He is in his late thirties, and owns and runs a small but very successful computer consultancy company, employing five people. Redemption penalties possible.Long-term fixed ratesAbbey National (0800 555 100) – 6.5 per cent interest rate to 2 Dec 2008.Halifax (0800 101 110) – 6.25 per cent interest to 31 Dec 2003, redemption penalties for a further two years.Source: `MoneyFacts’ magazine. He had made preliminary inquiries with his bank, which had indicated that it would be willing to lend his company the funds required. So pick the one that best suits your lifestyle,” he advises.Current Mortgage DealsStandard variable with incentivesBritannia BS (0800 526 350) – 8.85 per cent interest rate with30 per cent of the advance repaid after 20 years.Leeds & Holbeck BS (0800 072 5726) – 8.45 per cent interest rate with a cashback of 7 per cent of the advance that can be reclaimed in first six years.Variable-discounted ratesCoventry BS (0345-665 522) – 4.35 per cent interest rate charged until 30 Sep 2000 or 5.95 per cent until 30 Sept 2003.Nationwide (0800 302 010) – 6.45 per cent interest charged for three years or 7.15 per cent for five years.

“They will appeal most to those with fluctuating income or cash flows.”While many of the special offers now available can follow you if you decide to move home, most carry redemption penalties if you want to change to another lender, or move to a different type of repayment. These charges often remain in force for some years if you take a discount, or a year or two after the term of a fixed rate loan. The best deals carry penalties only during the life of the discount or fix.Always remember that, on average, a home-owner can expect to move house every six or seven years, whether it’s because of a change in job or just wanting different accommodation. So always look at any penalties or charges before accepting any offer.Overall, when looking at the different types of mortgages over the 25- year term most of us take, there is not much difference in the total cost if you add up the various fees, interest charges and repayment of capital.Having looked at some of the best fixed rate, capped, flexible and variable mortgages on offer, for a 95 per cent loan on a pounds 100,000 house, Mr Preston calculates that after adding together all the fees, interest payments and return of capital, after 25 years borrowers would pay around pounds 283,000 in total, whatever loan they chose to have.”Remember that while an offer may look attractive, if you keep the same mortgage going to maturity, they will all cost broadly the same, no matter what type you choose. “Especially if you can get a discount for the first two or three years.”These are standard mortgages, in which the interest rate moves up and down with the general economic climate At present, interest rates seem to have peaked In all likelihood, they should soon begin to fall. You can have your salary credited against your total loan, increase payments, pay off lump sums whenever you want, or even take a repayment holiday.”The self-employed or those on contract work could look at these,” says Mr Preston. Should interest rates go above this level during the term of the loan, you will not have to pay any more.