Mortgages

MortgagesMortgages are loans taken out to buy a property. A mortgage is a secured first charge against the property. The term first charge means that the lender has legal rights over the property until the debt is repaid.

The lenders rights over the property only extend to the amount of debt, so if a property is sold to repay a mortgage the lender would have to give the borrow excess proceeds back.

There are two main ways to arrange a mortgage.

Capital and Interest (Repayment) mortgage

With a repayment mortgage the borrower makes regular payments to the lender covering the repayment of capital and interest on the outstanding capital. The outstanding capital reduces each time a payment is made, and over a period of time you can see the debt reducing.

The mortgage will definitely be repaid by the end of the term, as long as the borrower makes all the payments on time and at the required level.

The repayment mortgage is ideal for those who want to be sure their mortgage is repaid by the end of the term.

Interest Only Mortgage

With an interest only mortgage the borrower pays interest each month on the outstanding capital. This means that the capital does not reduce over the term and the full amount will still be outstanding at the end of the agreed term . This type of borrower will usually take out an investment product in order to build up a fund to repay the capital at the end of the term.

The type of products usually associated with this type of mortgage are:

  • With profit endowments
  • Unit linked endowments
  • ISAs
  • Personal / stakeholder pensions
  • Unit Trusts

Interest only mortgages are only suitable for those type of borrowers who are prepared to take a degree of risk.

If at the end of the agreed term of the mortgage, if the investment product taken out has not reached its target amount the borrower will be responsible for any shortfall, and might have to find this shortfall out of other savings or investments.

Variable Rate Mortgage

With a variable rate mortgage, the rate payable will be the lenders standard variable rate.

Fixed Rate Mortgage

With fixed rate mortgages this usually means that the interest rate, monthly payments remain fixed for an agreed period, typically two to five years. Fixed rate mortgages are good for those who want to be able to know what their monthly mortgage payment will be each month, and not worry about interest movements.

Discounted Rate Mortgage

A discounted rate mortgage is a discount from the lenders standard variable rate (SVR) for a stated period. The discount is a genuine reduction from the lenders SVR, is not deferred interest and does not have to be paid back. Although the borrower will pay a lower rate during the discount period, they are not protected from interest rate rises which means that the risks are much the same as a variable rate mortgage.

Basic Rate Tracker Mortgage

The basic rate tracker mortgage is a variable rate mortgage that tracks the movement in the Bank of England base rate which is reviewed every month. The mortgage is usually set at fixed percentage above the base rate and will increase or decrease as the base rate changes. The rate of your mortgage changes as soon as the base rate changes.

Which mortgage do I need?

We are able to advise you in the selection of the most appropriate mortgage for you needs, from the whole of the market.

Please call Jan on 01706 830678 for advice, or use our enquiry form.