How does the iPhone Upgrade Program work?

I'm really not sure whether this is really on-topic, but here goes... How does the iPhone Upgrade Program work? I understand the information on the Apple site - I pay them monthly, no interest, with a small upfront payment & after a year I can get a new phone. My contract, however, runs for 20 months. Right. So, I'm paying say 50 bucks/quid/shekels for 20 months, yet I get a new phone after 12 months. Where does that leave me? 1. I continue to pay off my existing contract, another 8 months at 50 'currencies'? ...and I also have to start paying for my new phone, so I'm now stumping up 100 'currencies' per month to have the new one & an old one I no longer need? Or... 2. they take back the old phone & let me off the last 8 months & I just pay a new deal of 50 'currencies' for the new one, with a 20-month contract unless I repeat the same after another year? or is there a 3. ?