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Mortgages There are two types of mortgage on the market today; capital repayment and interest only. In the first case, the monthly instalment is a combination of interest and repayment of capital so that over the term of the mortgage the loan is gradually repaid.; in the latter, interest is paid to the lender and the loan itself is repaid through an investment vehicle such as an endowment or savings plan, other investments or the sale of the property. However there are many different products such as fixed, capped, variable or tracker mortgages. We will, of course, explain your options to you personally. The following guide may help you see the options that are available to you. Don’t worry about the number of choices to be made; we can help you find the right one to suit your current needs and circumstances, all you need do is give us the information we will ask for and let us do the rest. So whether you are looking to buy your first home, move, or simply wish to re-organise your existing mortgage to make better use of your resources, we can help you. Types of mortgage available Fixed rate mortgage With a fixed rate mortgage you pay the same interest rate for an agreed period – say, 5% for 2 years. You often have to pay more for a fixed rate, but it does offer stability of payment and the ability to budget more easily. Fixed rate mortgages are often favoured by first time buyers and young families who require the security of knowing what they will be paying each month. Whether or not a fixed rate is for you will depend not only on what you think is going to happen to interest rates (ie you might opt for a fixed rate if you think that rates are about to soar), but whether you are willing or able to take a risk. The risk applies not only to your present but future circumstances so any foreseeable changes should be taken into account. The alternative to a fixed rate is to opt for a variable rate. Tracker mortgage The tracker mortgage has a variable interest rate which shadows the movement of the Bank of England Base Rate. Trackers tend to offer lower rates compared to fixed and flexible mortgages, plus they have the benefit of reflecting current economic conditions: if the base rate drops your interest rate will fall, but if the base rate rises then so do your payments. Tracker mortgages suit those who are looking for one of the cheapest deals on the market, but who can afford to pay more should interest rates rise. As with any loan, it’s important to check the small print on tracker mortgages. The interest rate will be set at a certain amount – say, 0.11% below base rate for 2 years. However, your lender may protect itself from a significant reduction in interest rates by specifying a minimum rate that you have to pay. Discount mortgage A discount mortgage is similar to the tracker in that it is a variable rate loan and often amongst the cheapest available deals on the market. However, rather than following the base rate like the tracker, you get a discount off the mortgage lender’s standard variable rate (SVR) for a set period of time, say, 1.4% below the lender’s SVR for 2 years. Like tracker mortgages, discount mortgages often suit those looking for the cheapest mortgage on the market, but who can afford any increases to their monthly payments. Capped mortgage A capped mortgage guarantees that you monthly payments cannot rise above a certain amount, but if interest rates fall then your payments can drop. Because of its halfway house stance, capped mortgages tend to suit those who can cope with the payment fluctuations of a variable rate but who are also concerned about interest rates rising. They do offer some security and can be a compromise for those torn between a fixed rate mortgage and a variable rate mortgage. However, you may find yourself paying a higher interest rate. Flexible mortgage The flexible mortgage is a broad term to define any mortgage which offers features beyond the norm of the traditional mortgage. Flexible mortgages originated from Australia, where the intention was to offer mortgages for people with ‘alternative’ working lifestyles – such as freelance, temps etc. Offering features such as being able to overpay or underpay or take a payment holiday was an attractive prospect for those with varying monthly incomes. You tend to pay a slightly higher interest rate for a flexible mortgage so it normally only pays to take a flexible mortgage if you actually do require specific flexible features. Otherwise, you may find that a traditional mortgage may offer some of the flexible features that you require – eg the ability to make overpayments for a period of time. It all depends on what exactly you require from your mortgage. Offset mortgage With an offset mortgage, your savings can help to accelerate the repayment of the mortgage. For example, your mortgage is £100,000 and you have £25,000 in savings, so you only pay interest on the difference of £75,000. As with a traditional mortgage, you still pay the normal montly mortgage instalment to the lender each month. This results in an overpayment which reduces the capital outstanding. Some offset mortgages have a current account attached. You generally pay a higher rate for an offset mortgage, but its benefits include being able to pay off your mortgage more quickly than with a standard mortgage, and making tax efficient use of your savings. It’s important to note that whilst the offset sounds attractive and modern, it is really only of benefit to borrowers with substantial savings. Cashback mortgage With the cashback mortgage, your lender gives you a cash sum to the value of an agreed percentage in relation to your mortgage. For example, 5% of your £100,000 mortgage gives you a cash sum of £5,000. You may have to pay higher interest rates for a cashback mortgage, plus there may be early repayment charges attached to the mortgage. Try to ignore the appeal of a cash sum, because cashbacks tend to only really suit those who specifically require a cash sum and who don’t mind potentially being tied to their mortgage lender for a period of time. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE WE WILL CHARGE A MINIMUM FEE OF £1000 ON A MORTGAGE. |
