One of the fairy tales borrowers frequently hear is that a loan carrying an interest-only (IO) option is priced better than the same loan without the option. It is a fairy tale because the IO allows the borrower to avoid paying down the loan balance, which makes it riskier to the investor, and greater risk should mean a higher price.

(This is Part 2 of a two-part series. Read Part 1, "Transparency is king in U.K. mortgage system.")

Last week I noted that the pricing of mortgage broker services in the United Kingdom was...

(This is Part 1 of a two-part series.)

To gain perspective on institutional practices, nothing beats seeing how the practices differ somewhere else. Recently I looked at how mortgage brokers and the lenders they deal with operate in the United Kingdom. I have had invaluable help from Richard Hobson, a broker in the U.K. for...

Does mortgage insurance protect me if I'm disabled or lose my job?

No, mortgage insurance protects the lender against loss in the event that you default. You pay the premium, but the lender receives the protection. The sole benefit to you is that, with mortgage insurance, lenders are willing to make loans with down payments smaller than 20 percent...