Mortgages

For most people, buying a home is the largest single investment they will ever make. Receiving unbiased, expert advice can be invaluable in selecting the most appropriate mortgage type and repayment method.

There are two different repayment methods and several interest rate options. Your adviser will help you determine which is the best for you.

Repayment mortgage:
This repayment method is also referred to as a ‘capital and interest’ mortgage. Each monthly payment made to the lender will include the interest due and an element of capital. The proportion of each part will change over the term of the mortgage. In the early years the payments will consist mainly of interest and a small capital element. As the loan progresses, a higher proportion of the monthly payment will go toward reducing the capital. Assuming that all the monthly mortgage payments are maintained and are paid when due, this type of loan guarantees that the mortgage will be repaid at the end of the term.

Interest only:
With an interest only mortgage, each monthly payment made to the lender consists entirely of the interest due and doesn’t include any element of capital repayment. This means that throughout the term of the loan, it is only the interest being repaid as it falls due. The lender will require the amount of capital borrowed to be repaid in full at the end of the mortgage term. Many people use specially designed investment plans to clear the outstanding capital while others use personal resources. It is essential to make sure that you have adequate means with which to repay the capital or the property may have to be sold in order to repay the lender.

Interest rate options

• Standard variable rate(SVR):
  Most lenders set a rate that varies in line with economic conditions. Although this variable rate is usually not the most attractive rate, it normally comes without too many restrictive clauses such as early repayment charges.
• Fixed rate:
  This is where the lender offers to fix the interest rate at a certain level for a certain period of time. At the end of the fixed rate term, the rate will revert to the lenders SVR or the lender may offer you a new product. This type of mortgage is often chosen by people who want to be sure of their monthly payments for a specific period of time. There are likely to be financial penalties imposed for redeeming the loan within the fixed rate period.
• Discounted rate:
  This rate is essentially the SVR with a discount given for a specific period of time. As with fixed rates, there is likely to be a financial penalty imposed for early redemption.
• Capped rate:
  This is similar to a standard variable rate mortgage but with a defined upper limit known as a cap. The interest rate you pay is guaranteed not to rise above this level for the period that the cap is in place. This type of mortgage allows you to take advantage of falls in the interest rate while restricting the limit of any rises. Again, there are likely to be penalties for early redemption.
• Tracker rate:
  A tracker rate is variable but is linked to the Bank of England base rate rather than a lenders standard variable rate. Usually the rate will be the Bank of England Base rate plus a set percentage i.e 2%. The rate payable will then fluctuate with any changes in the base rate for the tracker period. Again, there are likely to be penalties for early redemption.

A fee of a maximum of 1% of the loan amount is payable on application.  Typically this will be £250

For further information or assistance click here for one of our consultants to contact you.