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Mortgages

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MORTGAGE FINDER ~ HOW A MORTGAGE WORKS

A mortgage is simply a loan agreed to by a lender in order to buy a property. A rate of interest is charged on the balance outstanding and a monthly payment calculated that the customer needs to pay in order not to be in breach of the mortgage conditions. Should this not be paid on time and in full each month, the lender often has the right to add penalties, remove discounts or even take legal action to repossess the property. In this case the property would be sold in order to cover the mortgage account outstanding at that time. They can do this because they take a 'legal charge' on the property when the loan is taken out. Hence the term ~

'YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP THE REPAYMENTS ON IT'

Deposit?

There are only a few lenders that have mortgage products that do not require the customer to find a deposit. Most of these 100% mortgages will allow some of the relevant fees, such as lender arrangement fees and the legal costs, to be added to the loan. Lenders conditions and criteria attached to these mortgages are now generally very strict.

Lower fees and lower interest rates are generally possible if you can find a deposit of at least 5%, ideally 10%. Deposits higher than this are more likely from home movers, due to the equity in their existing property (difference between selling price and existing mortgage balance).

Ways To Repay

There are two main methods of repaying a mortgage:

Interest Only

With this method you pay only interest to the lender, but still owe the balance until the end of the term, when the lender will insist on full repayment. Therefore you need to find a way to save up so you can be sure of doing so. The original method was to take out an endowment policy, which gave valuable life cover and a savings in one policy. Much has been written about endowment policies not reaching their expected figures and many policyholders have been advised to increase their premiums or find the shortfall elsewhere. Interest-only could be useful if you have an alternative way to pay off the mortgage e.g.: an inheritance is due in a few years time and you need low payments at the moment. Unfortunately not many of us can rely on such planned payouts or winning the lottery so we rarely advise this unless investments already exist and the customer is fully aware of the consequences.

Repayment

Also known as Capital & Interest, this method involves paying back the amount borrowed as well as the interest charged on it. The monthly payment is calculated so the mortgage will be paid off in full (providing all payments are made on time and in full) at the end of the mortgage term. The payment will only vary if the relevant interest rate alters. Because the monthly payment covers only a small amount of capital and mostly interest at the start, the balance reduces slowly at first. As the capital is paid off the amount of interest reduces and so more of the mortgage is paid as the term progresses. Towards the end of the term, the payment consists of very little interest and mainly capital. We are able to illustrate figures on how your proposed loan would be repaid, comparing different terms in years if required.

Types Of Mortgage

Variable

All lenders have their own variable rate of interest; in fact some have more than one! This rate is set by the lender themselves and can be changed up or down at any time, regardless of how the Bank of England base rate or other money rates alter. The lender rate is usually charged to the mortgage account after an initial period of fixed, discounted or capped, or immediately after a Cashback is paid.

When the interest rate is altered, the monthly payment is usually adjusted either from the following month or at the end of the financial year. (A fixed time of year or anniversary of the mortgage loan, depending on the lender).

As an alternative to the lender-led variable rate, some modern mortgages are based around the Bank of England Base Rate. Due to the nature of this new generation, they are often known as flexible mortgages.

Discounted

Most lenders will offer a discount from their variable rate for a period of time, typically 1, 2, 3 or 5 years.

Advantages:
  • Payments will be lower for a period of time.
  • If the variable rate goes down the payments will reduce.
Disadvantages:
  • Payments could go up if the variable rate increases.
  • There is often a penalty for paying more than the planned amount during the discounted term, (although a few lenders do allow limited extra payments).
  • When the discount period ends, the payment is guaranteed to increase. After paying a lower rate for a few years, it can be easy to forget that you had a discount in the first place and not be prepared for the inevitable increase!
  • If you want to move home during the discounted period, you may not be able to do so without being penalised (unless the loan is classed as being portable).

Fixed

The interest rate can be fixed for a set period of time, again typically 1, 2, 3 or 5 years, although there have been deals with up to 25 years fixed!

Advantages:
  • Monthly payments will be as agreed for that period of time.
  • Ideal if you need to budget your outgoings or expect interest rates to rise.
  • Ideal if you are unlikely to easily afford extra payments should interest rates increase.
Disadvantages:
  • You could be paying a higher rate than everyone else should rates drop dramatically below your fixed interest rate.
  • There is often a penalty for paying more than the planned amount during the fixed term, (although a few lenders do allow limited extra payments).
  • If you want to move home during the fixed period, you may not be able to do so without being penalised (unless the loan is classed as being portable).
  • When the fixed rate ends, the variable rate will normally be applied to the mortgage account. This could involve much larger repayments if the variable rate is much higher than the fixed rate.

Capped

With this type, the variable rate is usually charged from the outset, but there is a guarantee for a set number of years that, should the variable rate increase to above the selected 'capped' rate, the rate used to calculate interest would be at that rate.

Advantages:
  • Ideal if you want to benefit from decreases in the variable rate but do not want to be financially disadvantaged if the rate should increase.
Disadvantages:
  • When the capped rate period ends, the charge rate will be the variable interest. If this is higher than the capped rate, the payments will increase.
  • There is often a penalty for paying more than the planned amount during the capped term, (although a few lenders do allow limited extra payments).
  • If you want to move home during the capped period, you may not be able to do so without being penalised (unless the loan is classed as being portable).

New Generation Mortgages

There have been many new types of mortgage appear on the market over the last few years.

Most lenders offer some variation and each have their own merits. The following is a generalisation and every aspect does not apply to all similar mortgage deals.

Bank of England (BoE) Base Rate:

The mortgage interest rate often follows (or 'tracks', hence the term 'Tracker Mortgage') the Bank of England Base Rate. If this rate alters, the monthly mortgage payment will automatically alter, usually from the following month. It is not necessary to wait for the lender to reduce their variable rate (if indeed they do) if the BBR decreases.

Daily Interest:

Lenders have traditionally calculated the interest on an annual basis. Should you overpay your mortgage, whether by a few pounds each month or by lump sums on a one-off or regular basis, the overpayment would not be taken into consideration until the end of the financial year.

When interest is calculated daily, any overpayments reduce the balance from the following day and therefore interest payments are reduced accordingly. The effect can be to pay off your mortgage years earlier than planned, even by overpaying by a relatively small amount.

Flexible:

Most flexible mortgages use the two systems as detailed above. Flexible mortgages are usually offered as an alternative to fixed, discounted etc. Usually the only disadvantage is that payments will increase if the Bank Base Rate rises. Otherwise there are not normally any penalties if you overpay, repay in total or move house / remortgage.

The better flexible mortgages allow you to not only overpay, but also underpay and take payment holidays. Some allow you to 'draw down' i.e.: take back money from the mortgage account that you have previously overpaid! A few allow you to link or merge saving & current accounts so any credit balance is offset against the mortgage and thereby reduces the monthly payment or the term.

We understand each type of mortgage need to be treated individually. After discussions with you, we will be able to advise which of the many types of mortgage would suit your personal circumstances. We are then able to search out and recommend the exact deal from virtually every lender in the UK

Offset Mortgage : - a-offset-mortgage.info

Term

Most mortgage customers seem to think that they need to take out a mortgage over 25 years initially. In fact you can choose any term between 5 and 40, depending on your monthly budget and your current age. It is usually recommended that you aim for a target age so, subject to affordability if you are, say, 26 years old now, to opt for a 24 year term, so it will be paid by age 50!

All mortgage products and types of mortgages are subject to change at any time and therefore although this is a guide to what may be available it is very prudent today to obtain proper professional advice that covers the whole of the mortgage market and can identify with your needs


Please therefore just contact us either by phone on ~ 0845 642 0644 (Local Rate), use the quick Mortgage Finder ~ CALL BACK FORM or use the brief Mortgage Finder ~ ENQUIRY FORM, and then simply allow us to assist you with further information without any obligation whatsoever.

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All mortgage types & options are subject to availability and lenders conditions

Whatever your mortgage requirements Mortgage Finder can help provide information and assistance with different mortgages for different mortgage needs nationwide throughout the UK

YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER LOAN SECURED ON IT. THINK CAREFULLY BEFORE SECURING ANY DEBT AGAINST YOUR HOME

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